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Guide to Distinguishing Direct VAT and Deductions

Performing tax accounting, it is imperative to understand and clearly distinguish two methods of VAT declaration, including: deduction method and direct method; how to distinguish sales invoices and VAT invoices (VAT) and how to declare tax on sales invoices and VAT invoices in accordance with the law on invoices. In this article, Law Firm TRUST & BACKER will help you understand all the information related to these two methods of tax calculation and distinguish the type of invoice related to these two methods. If through the article you still do not have an answer to your question don’t hesitate contact us to continue please help!

Deductible and direct VAT calculation method
Method for calculating withholding VAT subtract and direct
  1. Comparison of direct and withholding VAT calculation methods
  • The similarity between the two methods: Used when declaring and finalizing corporate income tax (CIT), using the same system of vouchers, books and financial statements.
  • Differences, specifically:
Criteria Deduction method Direct Method
1. Concept – Business deducted between input and output tax. If the input VAT of the tax declaration period is greater than the output VAT, the enterprise does not have to pay tax.

– Invoice used is a form of VAT invoice.

– After establishment, almost all businesses choose this method.

 

 – Enterprises pay value added tax (VAT) according to the ratio on revenue (how much depends on the business line).

– According to this method, the payment of VAT is only based on the revenue achieved, regardless of input costs (with VAT and without VAT).

– Use invoice is a sales invoice purchased directly at the tax office.

– Enterprises that often apply this method are those that have difficulty determining input costs, or input costs without VAT invoices such as: Education, consulting, restaurants, hotels…

 
2. Target audience – Pursuant to Article 12, Section 2, Circular 219/2013/TT-BTC stipulating that taxpayers by the deduction method include:

· Enterprises, cooperatives are operating in production and business with annual revenue of 1 billion VND or more. ;

· Enterprises, cooperatives are operating in production and business with an annual turnover of less than 1 billion VND but register to voluntarily pay VAT by the deduction method;

Foreign organizations and individuals providing goods and services to conduct oil and gas prospecting, exploration, development and extraction, pay tax by the deduction method, and are declared and deducted by the Vietnamese party. instead.

 – Based on Clause 2, Article 13 Circular 219/2013/TT-BTC stipulating, taxpayers of VAT by the direct method of revenue include:

· Enterprises and cooperatives doing business with annual revenue of less than 1 billion VND but do not register to voluntarily pay VAT by the credit method;

· Households and individuals doing business;

· Fore foreign organizations and individuals providing goods and services to conduct oil and gas prospecting, exploration, development and exploitation activities;

· Other economic organizations that are not enterprises or cooperatives, except for registration to pay tax by the withholding method.
3.Invoice of use Value-added invoice, model number 01 GTKT. Sales invoice, model number 02 GTTT
4. Tax calculation VAT payable = Valid input VAT amount – Output VAT amount VAT amount = Revenue x Tax rate (%)
5. Tax rate, percentage of tax calculation Tax rate:

There are 05 types of tax rates applicable to each group of goods and services, specifically:

+ No tax;

+ Special tax rates;
+ 0% tax rate< /a>;

+ Tax rate 5 %;

+ Tax rate of 10% (applicable to all goods and services not in the above 4 groups).

 The percentage for calculating VAT is specified for each specific activity:

+ Distribution and supply of goods: 1%;

+ Services, construction excluding raw materials: 5%;

+ Production, transportation, services associated with goods, construction including raw materials: 3%;

+ Other business activities: 2%

 
6. Value added tax declaration Form 01/GTGT Template 04/GTGT

 

  1. Advantages and disadvantages of two tax calculation methods.
  • Direct declaration method

* Advantages:< /strong>

  • Enterprises do not need to fully implement issues such as accounting regimes, books, invoices, vouchers, do not need input VAT invoices because they are not entitled to tax deductions;

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  • Financial statements under the direct method are not as complicated as the amortization method;

* Cons:< /strong>

  • Enterprises applying this tax payment method are not allowed to deduct value added tax or refund input tax, which affects costs and prices of products and services.
  • Deduction method

*Advantages:< /strong>

With this calculation, businesses have the following benefits:

  • Input VAT is deducted;
  • The amount of VAT payable can be controlled and balanced by purchasing goods for reserve or use;
  • Enterprises with import activities and investment projects should apply this calculation to receive tax refund.

*Cons:

  • Need to have a professional accountant.
  • Many regulations and requirements related to invoices, tax rates of goods and services.
  1. Difference between VAT Invoice and Direct Invoice

 

According to Clause 1, Article 5 of Circular 119/2014/TT-BTC amending Circular 39/2014/TT-BTC stipulating invoices for selling goods and providing services as follows:

“Types of Invoices:

  1. a) Value-added invoice: is an invoice for organizations declaring and calculating value-added tax according to the deduction method in the the following operations:
  • Selling goods and providing services within domestic;
  • International transportation;
  • Exports into the non-tariff zone and cases considered as exports;
  1. b) Sales invoiceused for the following objects:
  • Organizations and individuals declare and calculate value-added tax by the direct method when selling goods and services in the domestic market, exporting to a non-tariff zone and other cases considered to be exported.

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  • Organizations and individuals in a non-tariff zone when selling goods and providing services to the inland and when selling goods and providing services between organizations and individuals in the free trade zone, on the invoice clearly stating “For organizations and individuals in non-tariff zones”
  1. c) Other invoices include: stamps; ticket; card; insurance receipt…
  2. d) Air freight receipt; receipts of international freight charges; vouchers for collection of banking service fees…, form and content are prepared according to international practices and relevant laws.”

è So, based on the above provisions, then:

  • VAT invoice: Used for businesses that declare VAT by the deduction method (Enterprises can choose the form of self-printed invoices (or) electronic invoices (or ordered invoices.)
  • Sales invoice: Used for businesses declaring VAT by the direct method (must go to the tax office to buy).

HOW TO DIFFERENT BETWEEN VAT INVOICE AND SALE INVOICE

VAT INVOICE Sales Invoice
On the VAT invoice there is a tax rate line There is no tax rate line on the invoice
There is no square stamp on VAT invoices There is a square stamp on the invoice

 

The above article has provided guidance on two methods of calculating VAT according to the deduction method and the direct method of the enterprise as well as the characteristics, advantages and disadvantages of each method, as well as how to distinguish between invoices VAT and direct invoice. Businesses can consult to choose the most suitable tax calculation methods for their business.

 

 

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