Conditions for Applying the Deduction Method for Newly Established Enterprises

For newly established enterprises, what documents are required to apply the deduction method? What documents do enterprises that voluntarily apply the deduction method need to submit to the tax authorities?

1. Can newly established enterprises apply the deduction method?

According to Official Letter No. 1097/TCT-KK dated March 30, 2015, the General Department of Taxation provides the following guidance:

“If a newly established enterprise or cooperative registers to voluntarily apply the deduction method, they must submit Form 06/GTGT to the direct tax authority before the deadline for submitting the first tax declaration. If the enterprise does not submit Form 06/GTGT by the deadline for the first tax declaration, it will be subject to the direct tax calculation method.”

Thus:

A newly established enterprise can apply the deduction tax method if it submits Form 06/GTGT to the direct tax authority before the deadline for submitting the first tax declaration.

2. Other enterprises eligible for the deduction method:

According to Clause 7, Article 11 of Circular No. 156/2013/TT-BTC dated January 6, 2013, issued by the Ministry of Finance:

“… In the case where the taxpayer from January 1, 2014, is eligible to voluntarily apply the deduction method as per the VAT law, they must send a notification to the direct tax authority regarding the application of the VAT calculation method using Form 06/GTGT attached to this Circular.

The taxpayer must send the notification to the direct tax authority before December 20 of the year preceding the year in which the taxpayer applies the new tax method or voluntarily applies the deduction method.”

According to Circular No. 119/2014/TT-BTC, Article 3, Point 3 amends and supplements Clauses 3 and 4 of Article 12 of Circular No. 219/2013/TT-BTC as follows:

“3. Business establishments that voluntarily register to apply the deduction tax method include: a) Enterprises, cooperatives operating with annual sales revenue from goods sales or services subject to VAT under one billion VND, which have fully complied with accounting, bookkeeping, invoices, and documentation requirements as per the law on accounting, invoices, and documentation.

b) Newly established enterprises from investment projects of existing business establishments paying VAT under the deduction method.

A newly established enterprise that implements an investment project approved by the competent authority is eligible to register voluntarily for the deduction method.

Newly established enterprises or cooperatives with an investment project not approved by the competent authority according to the investment law but with an investment plan approved by the company's authorized person are eligible for the deduction tax method.

c) Newly established enterprises or cooperatives implementing investments, purchasing, or receiving contributions of fixed assets, machinery, equipment, tools, or leasing business premises.

d) Foreign organizations or individuals conducting business in Vietnam under contractor agreements.

e) Other economic organizations that can account for input and output VAT, excluding enterprises and cooperatives.

Note:

• Enterprises, cooperatives mentioned in point a of this section must send a notification about applying the VAT method to the direct tax authority no later than December 20 of the year before the year in which the taxpayer applies the new tax method.

• Business establishments mentioned in points b and c must send a notification about applying the VAT method to the direct tax authority. When sending the notification, they are not required to submit supporting documents such as the investment project approved by the competent authority, the investment plan approved by the authorized person of the enterprise, investment invoices, purchase documents, or contracts for leasing business premises. The business establishment should keep these documents and present them to the tax authority upon request. If a newly established business establishment from January 1, 2014, does not meet the conditions to register voluntarily for the deduction tax method according to points b and c of Clause 3, Article 12 of Circular No. 219/2013/TT-BTC dated December 31, 2013, but meets the conditions set forth in these points, it will be applied as per the guidance in points b and c of Clause 3, Article 12 of this Circular.

• Business establishments mentioned in point d must send a notification about applying the VAT method to the direct tax authority.

• Business establishments mentioned in point e must send a notification about applying the VAT method to the direct tax authority before December 20 of the year preceding the year the taxpayer applies the new tax method.

Within 5 working days from receiving the notification about applying the deduction method, the tax authority must inform the enterprise, cooperative, or business establishment whether the notification is accepted.”

Based on these regulations, for the company to apply the deduction method, it must send Form 06/GTGT to the direct tax authority.

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