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Vietnam: Letters of credit are subject to VAT

Vietnam: Letters of credit are subject to VAT

The General Department of Taxation issued Official Letter No. 1606/TCT-DNL (April 2020) to provincial tax departments, as guidance confirming that letters of credit service are subject to value added tax (VAT).


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The provision of credit (lending) in Vietnam is VAT-exempt (without input credit) under current VAT rules. However, the treatment of letters of credit for VAT purposes has been uncertain because it has not been clear whether the issuance of a letter of credit by a credit institution is in the nature of lending (and exempt from VAT) or the provision of a payment service (and therefore subject to VAT).

The position of the tax authority is that, under a provision of the law that governs credit institutions, the provision of a letter of credit is not defined as a lending arrangement but as a type of payment service. Therefore, fees paid to credit institutions for the provision of letters of credit services are subject to VAT at a rate of 10%.

KPMG observation

Official Letter 1606 is vague as to whether it applies retroactively, but it appears that provincial tax departments would attempt to collect VAT on the provision of letter of credit services from 1 January 2011. In practice, provincial tax authorities are now adopting this tax position to collect VAT retroactively from some banks.

Read an April 2020 report [PDF 161 KB] prepared by the KPMG member firm in Vietnam

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