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New developments on accessing the zero VAT for international transport companies

January 21, 2013

The normal practice in international transportation is to consider a bill of lading (B/L) as evidence of a contract between the shipper and the transporter. This is not necessarily the case in Vietnam, however. It is a crucial issue, as companies can qualify for a zero VAT rate on the provision of international transportation services if they can provide the following documentation:

  • A transportation contract; and
  • Evidence that the payment was made via a bank.

Qualifying for the zero VAT rate gives a company the right to credit the input VAT from the purchase of goods or services associated with the transportation activities. If the VAT taxpayer fails to meet the criteria to qualify for the zero VAT rate, then they do not have to declare output VAT, but they are not allowed to credit the associated input VAT.

On November 4 2010, the General Department of Taxation (GDT) issued Official Letter (OL) No. 4464/TCT-CS confirming that if a company provides international transportation services for a client with only a B/L and not a contract, it would not meet the required conditions for a zero VAT rate.

As a follow-up to OL 4464, the Ho Chi Minh City Tax Department issued OL 4380/CT-TTHT on June 13 2012, confirming the same interpretation. The fact that the Vietnam tax authorities did not view a B/L as an appropriate replacement for a contract when determining whether a taxpayer is entitled to the zero VAT rate triggered a significant tax risk for companies who have claimed input VAT for years on the basis that a B/L is a contract. In response, some companies adjusted their VAT tax returns and declared penalties for the late payment of VAT to avoid bigger penalties in the future.

There was much discussion about and disagreement with this ruling. On behalf of its members, the Vietnam Freight Forwarders Association (VIFFAS) submitted to the GDT a detailed analysis of the practice in international transportation and asked for the ruling to be reconsidered.

In this regard, the GDT sought opin-ions from the Vietnam Marine Administration (VMA) and the Vietnam National Shipping Lines (VNSL).

The VMA opined that “an enterprise can present the B/L to replace the transportation contract for the transportation of goods from Vietnam to overseas and vice versa under liner terms. This is in accordance with Article 1 of Circular 112/2009/TT-BTC dated June 2 2009 of the Ministry of Finance providing guidance on zero VAT rate applicable to international transportation”.

The VNSL commented that “there are no contracts signed in advance for the transportation of goods by ship under liner terms. This is different from the transportation under charter party terms, where there must be a charter party. After the loading of goods, the transporter will issue a liner B/L to the shipper as unique evidence for the signed transportation agreement, and has the same validity as a contract. The liner B/L governs not only the relationship between the shipper and the transporter but also the relationship between the transporter and the receiver.”

In consideration of the two abovementioned opinions and the analysis of the VIFFAS, the GDT issued OL 3378/TCT- CS dated September 26 2012, indicating that in the case of transport under liner terms, a liner B/L (rather than a charter party B/L under charter party terms) would be deemed as meeting the criteria of a contract and the VAT taxpayer can benefit from the zero VAT rate as per the regulations.

OL 3378 is silent on whether this new interpretation revokes OL 4464’s interpretation and does not provide guidance on tax solutions for VAT taxpayers who selfadjusted their VAT tax returns and already paid penalties.

However, with this new OL’s clear confirmation, companies can continue to benefit from the zero VAT rate for international transportation.

Thuan Pham ([email protected])
Tel: +84 8 3914 7272 Fax: +84 8 3915 4248

This tax update was published by International Tax Review. You can download the PDF from following link.


Thuan is an experienced tax and accounting adviser with over 15 years of work experience. He has advised on the tax implications of large construction and engineering projects, major acquisitions, and on several highly publicized real estate developments in Vietnam, Cambodia, Laos, and Myanmar. Thuan has assisted property funds with their divestiture in Vietnam and advised multinationals on their corporate restructuring projects. He oversaw the team that reorganized the supply chain for a cosmetic multinational in Vietnam, including customs duty aspects. He specializes in corporate tax strategies for multinationals, banks and investment funds.
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