Question: How is value-added tax (VAT) deducted in specific cases?

Answer:

According to Article 4 of Circular No. 219/2013/TT-BTC dated December 31, 2013, by the Ministry of Finance, it is guided that: "Deduction of value-added tax (VAT) in specific cases is as follows: For businesses engaged in closed-loop production, centralized accounting that use products subject to non-VAT through various stages to produce goods subject to VAT, the input VAT at each stage is fully deductible."

Article 1, Section a, Article 9 of Circular No. 26/2015/TT-BTC dated February 27, 2015, by the Ministry of Finance, amends and supplements Article 14 of Circular No. 219/2013/TT-BTC dated December 31, 2013, regarding the principles of deducting input VAT as follows:

1.  Agricultural, forestry, livestock, aquaculture, and fisheries products, not yet processed into other products or only minimally processed by organizations or individuals for self-production and sale, whether domestically produced or imported;

2.  For goods and services (including fixed assets) subject to VAT and non-VAT used simultaneously for the production and business of VAT and non-VAT goods and services, only the input VAT of goods and services used for the production and business of VAT goods and services is deductible.

Businesses must separately account for deductible input VAT and non-deductible input VAT; in cases where separate accounting is not performed, the deductible input VAT is calculated based on the ratio (%) of revenue subject to VAT, revenue not required to be declared, and VAT payable compared to the total revenue from goods and services sold, including revenue not required to be declared, and VAT not accounted for separately.

Businesses engaged in the production and sale of goods and services subject to VAT and non-VAT must temporarily allocate the VAT of goods, services, and fixed assets purchased for deduction on a monthly/quarterly basis. At the end of the year, businesses should calculate the temporary allocation of deductible input VAT for the year to make adjustments to the deducted input VAT allocated on a monthly/quarterly basis.

Based on the above regulations, the Hanoi Tax Department states that in the case of the reader's company, if it is a direct provider of pig farming products and sells them directly to end consumers, it falls into the category not subject to VAT. Input VAT used for non-VAT activities cannot be deducted according to the regulations.

If the company contracts other entities to process pig meat for the production of pork floss and sausages, which are subject to VAT, the company can declare and deduct input VAT on the processing invoices according to the regulations.

For goods and services (including fixed assets) used simultaneously for the production and business of VAT and non-VAT goods and services, the company can only deduct the input VAT of goods and services used for the production and business of VAT goods and services. The company must separately account for deductible and non-deductible input VAT.

In cases where separate accounting is not performed, the input VAT that can be deducted is calculated based on the ratio (%) of revenue subject to VAT, revenue not required to be declared, and VAT payable compared to the total revenue from goods and services sold, including revenue not required to be declared and VAT not accounted for separately, as specified in Article 9 of Circular No. 26/2015/TT-BTC mentioned above.

For companies engaged in closed-loop production, centralized accounting using products subject to non-VAT through various stages to produce goods subject to VAT, the input VAT at each stage is fully deductible as specified in Article 4 of Circular No. 219/2013/TT-BTC.