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The difference between 0% tax rate and being tax-exempt
Value Added Tax (VAT) is a form of tax applied to the value added of goods or services throughout the production or supply process. This means that tax is only levied on the value added from the previous stage to the current stage in the supply chain.
VAT is typically applied at each stage of the production and distribution process, from raw materials to finished products. It is a form of indirect tax, it is not directly applied to the income of individuals or businesses but instead increases the value of goods or services.
0% tax rate and tax-exempt are both VAT-related policies to attract investment and promote development. Enterprises are encouraged to promote investment and production in industries for the purpose of stabilizing and stimulating the economy. So what is the difference? Let’ s find out with Siglaw Law Firm through the article below!
| 0% tax rate | Tax-exempt | |
| Characteristic | They are still subject to VAT but enjoy a preferential tax rate of 0%. | Are subjects not subject to VAT as prescribed. |
| Taxable objects | Being subject to VAT, sellers still have to declare tax in accordance with the law | Not subject to VAT, sellers are not required to declare tax |
| Purpose | To encourage enterprises to export and promote the consumption of goods and services abroad | Encourage enterprises to develop essential sectors for the people in the country |
| Subjects of application | The tax rate of 0% applies to goods and services exported, international transport and goods and services not subject to value-added tax specified in the Law on Value-Added Tax when exporting, except for the following cases:
+ Technology transfer, intellectual property rights transfer abroad; + Offshore reinsurance services; + Credit granting services; + Capital transfer; + Derivative financial services; + Post and telecommunications services; + Products exported in accordance with the Law on Value Added Tax. Exported goods and services are goods and services consumed outside Vietnam or in the non-tariff zone; goods and services provided to foreign customers in accordance with the Government’s regulations. |
Applicable to a number of subjects in agricultural production, social security, humanitarian activities, such as:
– Cultivated products (including planted forest products), livestock, aquatic products, cultivated and caught seafood that have not been processed into other products or only through normal preliminary processing by organizations or individuals self-produced, caught and sold and at the stage of import. – Irrigation and drainage; plowing, harrowing the land; dredging infield canals and ditches for agricultural production; services for harvesting agricultural products. – Salt products are produced from seawater, natural rock salt, refined salt, iodized salt whose main ingredient is sodium chloride (NaCl). – State-owned housing sold by the State to tenants. – Imports and goods and services sold to organizations and individuals for humanitarian aid, non-refundable aid, etc. Regulated in detail in Circular 219/2013/TT-BTC of the Ministry of Finance. |
| Tax declaration | Normal tax declaration is still required because the above-mentioned subjects are still subject to tax. | Individuals and organizations are not responsible for declaring tax for non-taxable objects. |
| Tax deductions and refunds | Trading establishments of goods and services subject to 0% tax are entitled to deduct and refund input VAT according to regulations. | Non-taxable goods and services trading establishments are not entitled to input VAT deduction and refund. |
| Bill | The VAT invoice clearly states the selling price as the price without VAT, the tax rate line is stated as 0% and VAT is stated as 0%) | The VAT invoice clearly states the selling price as the price without VAT, the tax rate line and VAT are not written or slashed |
Above is some basic information about the difference between 0% and non-taxable tax rates. If you have any questions about the Tax Accounting package, you can contact Siglaw Law Firm directly for support!
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