What’s Vietnam’s VAT tax, anyway? Sometimes this country baffles in its opacity (at least for us foreigners… but I suspect it’s difficult for Vietnamese, too, at times), but here’s a little more information about what to expect when the final bill comes, and how to manage your expectations regarding this tax!
Everyone must deal with VAT.
But what does it mean? Why does it seem to be applied irregularly? And do you have to pay it every time? Details are a little unclear on the ground, but there’s more to know about this national tax, including when you can get a hefty refund.
The above chart explains the principle of indirect tax.
VAT in Vietnam
VAT stands for Value Added Tax, and acts as a pillar of government funding in Vietnam. It’s essentially a sales tax levied on a variety of goods and services. Currently, and stretching back until at least 2006, the tax rate has remained at a flat 10%, with 5% in certain exceptions.
VAT is a general and indirect tax on consumption. This tax was invented in the 50s for States to get tax revenues from consumer acts that take place on its territory. Today, VAT has been introduced in almost 70 countries worldwide. In addition, it is indirect because contrary to the direct taxes, the State does not tax consumers directly. Instead, it designates an intermediate collector, which is responsible for paying the State.
Every business entity must regulate and pay VAT by the 20th of every month, but not every business states this at the time of purchase. Many smaller shops will either assume you know and charge you as usual, with tax calculated and charged on top of the advertised price, or roll the tax into the final price, making it look like you’re not paying more (and allowing them to charge flat, easily-rounded amounts). Other places, especially high-end restaurants that cater to foreigners, note this at the bottom of their menus and indicate that it’ll be included after the total is calculated. It sounds like a tip for waitstaff, but it is not, and additional tips are appreciated if warranted!
For political or economic purposes, there are sometimes different VAT rates: one is the “standard rate” and the other one is the “reduced rate.” For instance, the standard rate for France is 20%, but as it is a tourist country, the rate of VAT in the restaurant sector is 7%. Another example: Switzerland has a standard rate of VAT at 8%, but 3.5% for essential goods. Vietnam’s is currently 10% across the board, as seen above.
In 2012, VAT represented almost 20% of total tax revenues in OECD countries. Because of the financial crisis of 2008, governments have generally increased the standard rate of VAT, which reached an average high of 19.1% in January 2014.
VAT can also be found on goods other than food… and sometimes you don’t have to pay it all!
If you buy within 30 days of leaving Vietnam and can produce an international plane ticket confirming your exit from the country, you can actually get a refund of 85% on this tax! Items such as electronics, phones, and cameras are generally priced equivalently to Western markets, but in this case you can save a bit of money by buying simply asking for a VAT receipt and cashing in at the airport of your choosing.
However, not every shop is part of the program (look for the accredited ‘VAT Refund for Tourist’ logo), and there are some requirements:
- The goods must be subject to VAT, unused and permitted on aircraft.
- The goods must not appear on the list of export prohibitions or restrictions.
- Goods must have invoices and VAT refund declarations issued within 30 days of departure.
- The goods must be bought from a single shop in the duration of a single day and must be valued at least VND2.000.000 (about US$100).
To get the VAT refund:
1) When purchasing, you must submit your passport to the retailer so they can create the VAT refund declaration form. They will issue you an original copy – check that all your information is correct.
2) Once you are at the airport and ready to leave Vietnam, head over to the VAT refund customs inspection office where you will need to present the goods you have purchased, your passport, and the invoices and VAT declaration form.
3) Once you’ve taken care of the paperwork to get your declaration form, you will need to submit a boarding pass from an international flight and invoices along with your VAT declaration form to the VAT refund counter. This is where you will receive your refund.
WARNING: It will be in Vietnamese Dong so you will need to exchange your currency (as VND is not exchangeable outside of Vietnam). Tan Son Nhat and Noi Bai Airports offer banks inside the terminals.
Special Consumption Tax
There’s also an additional tax on imported goods deemed ‘luxury’ by the government. This isn’t something I’ve had to deal with personally, but it’s an option for big spending tourists.
Cars (if you live in country semi/permanently and you’re in the market) are outrageously expensive here, and you probably shouldn’t buy one unless you’re ready to take a hefty loss. SCT Tax currently floats between 45-60% on vehicles imported with fewer than 9 seats, depending on engine capacity.
According to SCT Law, SCT is levied on the production and importation of 11 categories of products and six types of services that are considered to be luxurious or non-essential. Generally, goods and services subject to SCT are also subject to VAT. The basis of VAT calculation is the selling price plus the SCT. For imported products, VAT is imposed on the dutiable value plus import duties plus SCT.
Below are the SCT rates for a range of commonly imported products:
- Cigars and cigarettes: 65 percent
- Alcohol and wine: 25-50 percent
- Beer: 50 percent
- Petrol: 10 percent
Also, certain services are subject to SCT, these include:
- Casino and jackpot games: 30 percent
- Massage and karaoke: 30 percent
- Golf: 20 percent
Certain goods are exempt from SCT, these include:
- Goods manufactured and directly exported or sold to authorized agents for export
- Imported goods including:
- Humanitarian aid and non-refundable aid goods
- Goods temporarily imported for re-export, or temporarily exported for re-import during the tax-free period
- Airplanes and yachts for sale and transport of passengers and goods
- Goods imported to non-duty areas, domestic goods sold to non-duty areas (exclusive of automobiles with less than 24 seats)
P.S. Many thanks to Antoine for his financial brain smarts!
I hope this helps! Please leave questions in the comments (after I figure out why they’re not working, that is)!