Common mistakes regarding value added tax (VAT)?

5/9/2021
Common mistakes when declaring input VAT

1. Input VAT deduction of products and services subject to trade discounts

Enterprises are entitled to trade discounts when the sellers have registered these items in accordance with the provisions of the Commercial Law, then the input VAT on products and services is reduced. If the enterprise is entitled to a trade discount from time to time (by day), the enterprise is entitled to a direct reduction in the purchase unit price and the input VAT will be deducted accordingly according to that purchase price. In addition, when a company is entitled to a trade discount by period (monthly, quarterly or yearly), the following two cases occur: 

- If the last sale and purchase value is greater than the discount value, the seller, when issuing the VAT invoice, must write an additional line of discount, then the buyer is deducted the full input VAT according to bill. 

- If the last sale and purchase value is less than the discount value, the seller shall write down the discount next time, it is noted that the seller must not record negative amount on the invoice. 

In the event that the buyer no longer buys, the seller will issue an independent VAT invoice recording the discount for the invoice "from ... to number ...." and send it to the buyer. 

2. Deduction of input VAT on returned products and services

For products and services that are returned by the buyer to the seller, the buyer needs to adjust the input VAT and the seller should adjust the output VAT. Both the buyer and the seller should pay attention to the reasons for returning the goods specified in the contract such as: Poor quality goods, wrong specification and types. 

- If it is a business organization that returns goods: Buyer shall make a record of returning the goods, issue a VAT invoice to return the goods to the seller, on the invoice clearly state: Invoice of returning goods due to poor quality or wrong specifications, types (according to Section 2.8, Appendix 04 of Circular No. 39/2014 / TT-BTC). 

- If the non-business organization (Department of Finance, Department of Labor, Department of Invalids and Social Affairs ...) returns the goods, the buyer should make a return record stating the reason for the return as poor quality, wrong specification ..., quantity of returned goods, corresponding amount, tax amount ... and returns the original VAT invoice. In case the buyer only returns a part of the purchased goods, it must also return the original VAT invoice before the seller issues the additional VAT invoice. 

- If the individual returns the goods: The individual has no invoice, the individual needs to return the original VAT invoice and goods return record to the seller. In case the individual loses the invoice, he / she must pay a fine equal to ½ of the invoice value and the individual must pay the fine to the tax agency by himself. 

3. Input VAT deduction for products lost during inventory, or losses caused by natural disasters or individuals

- Products are lost when stocktaking: If the product is fully compensated, the enterprise is not allowed to deduct the input VAT on that product but must reduce the input VAT and cost because that product is no longer in stock and not used for production and business. If the accountant handles the lost products by issuing sales invoices for the lost products so that the company can deduct input VAT, the enterprise will be fined (fined twice) because this is a fictitious invoice. If the accountant handles it by compensating with another product, it is not accepted because the seller will issue an invoice for the offset product, if the buyer is the name of the enterprise, this is the new purchase, while if the name is individual, it has nothing to do with the enterprise. 

- Products lost due to natural disasters (floods, lightning ...): Enterprises are still entitled to a deduction of input VAT on this product (Clause 1, Article 4 of Circular No. 219/2013 / TT -BTC). But if the enterprise has purchased insurance and is compensated at the VAT-inclusive amount, it is not deductible, and if the enterprise has purchased insurance and is compensated at the VAT-exclusive price, the VAT will be deducted normally. If the company has not purchased insurance for that product, the enterprise is still entitled to input VAT deduction for the part of the lost product that can be determined. 

- Loss of product caused by an individual: The individual is responsible for the lost, the company can support the individual a part. The input VAT on products lost by individuals is not deductible. 

4. Input VAT deduction of products and services on payment discount, purchase support

- For payment discount: The seller is not allowed to record the payment discount on the VAT invoice to issue to the buyer, otherwise the buyer will not be deducted input VAT on that invoice. The seller is not allowed to write down the payment discount on the purchase invoice but pay in cash or offset the debt in accordance with the economic contract signed between the buyer and the seller. 

- For purchase support: If the seller supports the purchase in cash, it is not related to input VAT deduction. If the seller supports the purchase in goods or services, the seller must issue a VAT invoice and declare the output VAT but the buyer is not allowed to deduct input VAT because the buyer does not have to pay for the goods or services. 

5. Distribution to deduct VAT monthly and at the end of the year for goods not subject to VAT, goods not subject to tax declaration and goods subject to VAT

When allocating for monthly and year-end VAT deduction for goods not subject to VAT and goods subject to VAT, the accountant shall apply the content of Clause 9, Article 1 of Circular No. 26/2015 / TT-BTC to allocate VAT for the two activities, the accountant should pay attention to the denominator part of the formula with the item "revenue not subject to tax declaration" in accordance with Article 5 of Circular No. 219/2013 / TT-BTC and Article 1 of Circular No. 193/2015 / TT-BTC. Enterprises are only allowed to deduct input VAT on production of products subject to VAT. The input VAT used in common for items that are not subject to VAT declaration and for goods subject to VAT is fully deducted, so the accountant does not need to allocate it. 

6. Deduct the input VAT on the product in excess of the consumption norm

If the consumption is over the consumption norm prebuilt by the enterprise, the enterprise is still entitled to a deduction of the VAT portion of the allowed norm. If the consumption is over the norm built by the State, the enterprise may not be allowed to deduct input VAT, and the incurred costs are also excluded from deductible expenses. If the enterprise does not set the norm of product consumption, the tax agency shall fix the norm. If in the norm, the enterprise may deduct input VAT, and in excess of the norm, the enterprise is not allowed to deduct input VAT. 

7. Allocating for VAT deduction in case of wrong payment of fiscal year and wrong financial invoice

For input VAT invoices that enterprises must pay in this year, but the payment is made in next year and not comply with regulations, the enterprise is not allowed to deduct input VAT and to record the expenses in the month / year when the payment arises. Therefore, the allocation for VAT deduction in this case is wrong. 

For input VAT invoices which have been deducted for this year but discovered that the financial invoice is incorrect in the next year, the accountant needs to declare additional input VAT reduction for this year. 

Common mistakes when declaring output VAT

1. Invoicing improperly according to regulations

- Not issue invoices for revenue from payment according to progress for capital construction works, real estate, infrastructure.

- Not issue invoices for construction, installation that have been completed, accepted and handed over.

- The time of issuing invoice is not in accordance with regulations:

+ For the sale of goods: is the time of transferring the ownership or the right to use the goods to the buyer. No matter whether the money has been collected or not. 

+ For service provision: is the date the service provision is completed. No matter whether the money has been collected or not. If the money is collected before or while the service is provided, the billing date is the collection date.

+ For the supply of electricity for daily-life, domestic water, telecommunications services, television services: No later than seven consecutive days from the date of recording the electricity and water consumption indicators on the meter or the end date of convention period for the provision of telecommunications and television services. 

+ For construction and installation: It is the time of acceptance and hand-over of completed works, work project, construction and installation. No matter whether the money has been collected or not. 

Note: If delivering many times or handing over each item or service stage, each delivery or handover must be invoiced for the volume and value of goods or services delivered respectively. For organizations dealing in real estate, building infrastructure, building houses for sale, or transferring, collecting money according to the project implementation schedule or the collection schedule specified in the contract. Then the billing date is the collection date. 

+ For exported goods and services: The exporter shall determine it according to the agreement between the exporter and importer. The date of determination of export turnover for tax calculation is the date on which customs procedure completion is confirmed on the customs declaration. 

+ For sale of petroleum, provision of banking services, securities: the date of making an invoice shall be done periodically under the contract between the two parties (together with a list or other documents certified by both parties), but the latest is the last day of the month in which the purchase and sale activity arise. 

+ For the sale of crude oil, natural gas, processed oil and gas and some special cases, follow separate guidance of the Ministry of Finance. 

- Invoices are made in contravention of regulations. 

- Not issue an invoice at the end of the day or have made but the payment amount is lower than the actual amount collected in case the buyer does not get an invoice. 

- Trading in goods and services left out of the book. That is not import invoices and vouchers to not have to output invoices. 

- Determining the wrong time of recording VAT-liable turnover. For example: In cases where goods are sold with deferred payment or installment payment or rentals paid in advance for many periods, invoices are issued and collected but VAT is not declared. 

2. Wrong determination of VAT calculation value 

For example: in case of issuing an invoice but incorrectly determining the land price to be deducted from the VAT-liable turnover for real estate trading, construction of infrastructure, house for sale.... 

3. Failure to declare (incorrectly declaring) the VAT-liable turnover 

- Not declare revenue from the sale of property. 

- No tax declaration for liquidation of fixed assets or sales of scraps, wastes. 

- Not declare and calculate output VAT on goods given, donated or exchanged. 

- Declare incomplete or lower revenue on the invoice. 

4. Other errors 

- For deductions that do not comply with legal procedures in accordance with regulations. For example: Incompletion of procedures for commercial discounts or sales discounts. 

- Goods and services that fail to export procedures but still declare 0% VAT. 

- Incorrectly determine and declare tax rates for goods and services that are not subject to VAT. 

- For companies doing business in many fields, establishing many branches in different areas but only declaring and paying VAT for the main business lines without declaring revenue for other activities 

Common mistakes when refunding VAT

- Documents proving exported goods: 

+ Failure to explain the difference between the invoice and the customs declaration, between the invoice and payment receipt. 

+ Lack of legal payment documents for exported goods. 

+ There is no customs confirmation at item 47 of the customs declaration. 

- An application form for VAT refund does not identify the specific object of VAT refund (export or cumulative negative 3 months, etc.). 

- The general declaration of the arising amount requested for refund does not match the monthly declared VAT amount (must be adjusted to the wrongly declared amount before making a VAT refund dossier). 

- The deputy director or authorized person signs the tax refund request letter VAT is not considered valid. 

- The account that requested to transfer the VAT refund amount does not match the account number and the name of the bank registered with tax agencies.