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|Grant Thornton Vietnam provides a look at the thorny issue of VAT refund in Vietnam|
VAT refund plays a crucial role in the cash flow and tax budget of both enterprises and the government. For these reasons, Grant Thornton Vietnam would like to share some of its practical experience in this regard.
The significant benefits that enterprises can enjoy when they succeed in getting tax refund include:
Despite the benefits of a VAT refund, enterprises should be aware of potential risks and obstacles they may face during the refund process.
When enterprises plan on requesting VAT refund, all supporting documents like invoices, contracts, and payment vouchers must be prudently filed and recorded in both hard files and soft files at their offices. During tax audit, many working papers need to be prepared, supplemented, and explained to the tax officials.
Additionally, upon request of the tax officials, admin tasks such as sorting out files/documents, printing documents, and meetings are very time-consuming. In practice, the enterprises have to spend a lot of time explaining issues during the tax audit period. This makes the whole VAT refund process long and exhausting.
Many enterprises submitting VAT refund dossiers for the first time estimate the necessary time to obtain the refund in cash would be one or two months. However, in practice, in complicated cases, subjective and objective reasons can prolong the refund process by more than six months. Consequently, if enterprises are not able to manage their cash flow and tax budget well, they may encounter a cash flow crisis.
In other cases, enterprises may submit VAT refund application dossiers indicating the refundable amount determined/calculated themselves. However, in the end, the refunded amount approved by the tax authorities based on their tax audit/refund assessment may be less than the amount determined by the enterprises. This could negatively impact the enterprises’ budgeting and planning for operation and production.
Under the current regulations, the enterprises that submit VAT refund application dossiers for the first time must be subject to “tax audit first and refund later.” In this case, the tax authority will conduct a tax audit at the enterprises. During the tax audit to assess the VAT refund dossier, the tax authority may investigate and find out more tax exposure (rather than VAT only as per the enterprises’ expectation), such as transfer pricing, non-deductible expenses for Corporate Income Tax (CIT), no qualification for professional practice like pharmaceutical production, real estate, construction or violation of capital contribution rules. As a result, the enterprises might be subject to another tax audit/inspection by the tax authority.
Enterprises’ personnel might fail to understand VAT refund regulations correctly or fail to update themselves on the dramatic and constant changes in VAT refund, which can lead to incorrect self-determination of VAT refund entitlement or insufficient preparation for supporting documents relating to the VAT refund dossier. Consequently, the authorities can reject VAT refund applications or reduce the refundable VAT amount on reasonable grounds.
To mitigate the aforementioned potential risks and maximise the refundable VAT amount, enterprises should pay attention to the following significant points:
By capturing the updates on the latest tax regulations, together with good preparation/self-review before submitting the request for VAT refund, enterprises can maximise the refundable VAT amount. In practice, it is not too difficult to obtain the full refund amount self-determined by enterprises in the application dossier, depending on the complexity of transactions and expenses, the internal structure, availability of supporting documents, and document filing.
More importantly, the practical experience of the personnel in charge in the whole VAT refund process, such as preparing/filing documents, having proper explanation for the issues challenged by the tax officials during VAT refund assessment, will make the process go more smoothly and efficiently.
This article is of a general nature only and readers should obtain advice specific to their circumstances from professional advisors.