When a company must issue VAT invoice for an amount of collection or payment on behalf of its client?

Writer: Phuong Nguyen

During the operation of a company, it is normal that such company agrees payments or collections on behalf of its customers or partners. For example, such company can pay in advance on behalf of customers for some expenses, then take back the full amounts from customer. Or it may represent its partner to collect money from a third party and return full amount to partners. In fact, there is no income or profits to the company arising from such transactions. So, does the enterprise need to issue invoices and declare VAT for payments or collections on behalf?

Here BLawyers Vietnam would have some legal notes regarding this matter for your reference.

How is the law of Vietnam regulated on this issue?

Per the prevailing tax laws of Vietnam, a company must issue VAT invoices when selling goods or providing services, including:

  1. Goods or services used for sales, ads, samples; and/or
  2. Goods or services used for gifts, exchanges, paying to employees instead of salary (except for goods for internal rotation or internal use to continue the manufacturing process).

However, for collections or payment on behalf that are irrelevant to selling goods or providing services, such company does not need to issue VAT invoice and declare VAT amount.

How is the practical guidance of competent authorities on this case?

In fact, many companies have confusion on issuing VAT invoices and declaring VAT amount for collections and payments on behalf. We have collected some guidance from Tax Departments of Vietnam for some specific cases as follows:

For payments on behalf of another company

The General Department of Taxation gave direction for a case through the Official Letter No. 323/TCT-CS dated 21 January 2020. Accordingly, if an enterprise paid on behalf of its partner, the seller’s VAT invoice of providing service must record name and tax code of the partner. When collecting the amount from its partner, such enterprise just makes a receipt without issuing VAT invoice or declaring VAT amount.

In addition, Ha Noi City Tax Department also gave guideline in the Official Letter No. 54756/CT-TTHT dated 14 August 2017. In which, if the VAT invoice recorded the enterprise’s information, the seller could revoke it and issue a new one to the authorization party. In case the seller fails to do that, the enterprise must make a VAT invoice and declare VAT amount when collecting the money from its partner.

For collections on behalf of another company

A company shall not have tax obligation regarding collection on behalf of another company which is irrelevant to its activities on selling goods or providing services. Official Letter No. 2519/CT-TTHT dated 24 March 2016 of Ho Chi Minh City Tax Department stated the same guidance. When conducting the collection on behalf another company, such company must issue VAT invoice to buyers stating its name and tax code. However, for this transaction, such company does not need to declare and pay VAT because it is irrelevant to the sale of goods or service of such company.

You can read more guidance of Hung Yen Province Tax Department on PIT policy for employees.

Should you have any questions, just feel free to contact us at consult@blawyersvn.com.

When a company must issue invoice for an amount for payment on behalf of another company

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