THE MINISTRY OF FINANCE
THE GENERAL DEPARTMENT OF TAXATION
SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom – Happiness
Hanoi, March 02, 2007
ON TAX POLICIES APPLICABLE TO ODA-FUNDED PROJECTS
Mekong Economic Consultancy Limited Liability Company
(389 Thuy Khue street, Tay Ho district, Hanoi)
In response to Official Letter No. 02/06/MKE of January 10, 2007, and Official Letter No. 05/06/MKE of January 22, 2007, of Mekong Economic Consultancy Limited Liability Company (Mekong), on tax policies applicable to ODA-funded projects, the General Department of Taxation expresses the following opinions:
Point 1.2, Section III of the Finance Ministry’s Circular No. 41/2002/TT-BTC of May 3, 2002, guiding the application of tax policies to programs and projects funded with official development assistance (ODA), stipulated: “Non-refundable ODA project owners are entitled to refund of the value-added tax (VAT) amounts they have paid when directly purchasing VAT-liable goods or services in Vietnam for the execution of their non-refundable ODA projects under the guidance at Point 3, Section IV of this Circular: Principal contractors (regardless of whether they pay VAT by the credit method or direct method), when building or installing works or providing goods or services to owners of non-refundable ODA projects, are not required to calculate output VAT and are entitled to refund of input VAT amounts they have paid when purchasing goods or services for the building or installation of works, production of goods or provision of services for owners of non-refundable ODA projects under the guidance at Point 3, Section IV of this Circular.”
Under the above guidance, VAT policies applicable to the consultancy service contract signed between the Company (the principal contractor) and the owner of the Project on primary education for disadvantaged children (under the Ministry of Education and Training) shall be determined on the following principles:
- When the value of the signed contract includes VAT and the project owner is allocated reciprocal fund for VAT payment, the Company shall declare and pay VAT as stipulated.
- When the value of the signed contract includes VAT but the project owner is not allocated reciprocal fund for VAT payment, the project owner is entitled to VAT refund.
- When the value of the signed contract excludes VAT and the project owner is not allocated reciprocal fund for VAT payment, the Company is entitled to refund of the input VAT on goods and services which it has purchased for the project.
The VAT refund procedures and dossiers are as guided at Point 6, Section II, Part D of the Finance Ministry’s Circular No. 120/2003/TT-BTC of December 12, 2003, providing guidance on VAT.
The payment term of the consultancy service contract signed between the Company and the owner of the Project on primary education for disadvantaged children does not state whether or not the payment price is inclusive of VAT. Therefore, the Company and the project owner are requested to specify the contractual price (inclusive or exclusive of VAT) for use as a basis for the determination of VAT liabilities according to the above guidance.
The General Department of Taxation would like to give its reply to Mekong Economic Consultancy Limited Liability Company for information and contact with the local Tax Department for implementation guidance.
FOR THE GENERAL DIRECTOR OF TAXATION
DEPUTY GENERAL DIRECTOR
Pham Duy Khuong