The VAT imposition on interest income generated by non-credit institutions is further confirmed by the Government in Letter 608/VPCP-KTTH dated 4 February 2012, in reply to the request of the Ministry of Finance (“MoF”) and the State Bank of Vietnam (“SBV”). The Letter outlines that interest income generated by non-credit institutions is subject to VAT as the Government does not encourage non-credit institutions to engage in and generate income from credit activities.
In most VAT jurisdictions Loan Interest is VAT exempt. The relevant provisions of new VAT Circular[1] which was issued in early 2012 have been interpreted that interest income generated by non-credit institutions is subject to VAT.
The VAT imposition on interest income generated by non-credit institutions is further confirmed by the Government in Letter 608/VPCP-KTTH dated 4 February 2012, in reply to the request of the Ministry of Finance (“MoF”) and the State Bank of Vietnam (“SBV”). The Letter outlines that interest income generated by non-credit institutions is subject to VAT as the Government does not encourage non-credit institutions to engage in and generate income from credit activities.
The implementation of the instruction of the Government on VAT application to interest generated by non-credit institutions/banks was unclear and inconsistent in practice due to the absence of relevant guidance (in respect of taxable turnover, VAT rate, etc.) from the MoF.
The MoF, has, subsequently, submitted a Letter[2] to the government proposing that interest should be VAT exempt, whether generated by credit or non-credit institutions.
The Government, after further consideration, has issued Letter 1551/TTg-KTTH (“Letter 1551”) on 26 September 2012 providing that credit activities permitted within the provisions of the Law on Credit Institutions; Law on State Bank of Vietnam; or the Civil Code; or credit activities which are not prohibited by regulations are VAT exempt. The MoF is delegated to further guide the implementation of the Letter 1551.
Accordingly, Letter 1551 confirms interest income is VAT exempt, without any distinction on the income earners.
We will closely monitor and keep you posted any developments from MoF on this matter.
DFDL Tax & Customs Practice Group
Rolf Winand
Partner
Tax & Customs Practice Group
rolf.winand@dfdl.com
[1] Article 4 (8.a) of circular 06/2021/TT-BTC dated 11 January 2012 of the Ministry of Finance on VAT
[2] Letter 6812/BTC-TCT dated 22 May 2012.
