As a practice for years, fees earned by credit institutions and banks for their Letter of Credit (“LC”) services in Vietnam are not subject to VAT until recent tax rulings confirmed otherwise with retroactive tax implications, resulting in additional tax liabilities, penalties and unprecedent tax risks.
The controversy opens up a concern how banking laws and regulations are interpreted by the Vietnamese tax authorities and whether the issuance of tax rulings with retroactively implications should be allowed or banned in Vietnam. Notwithstanding this, businesses in Vietnam will have more cashflow impact when they use LC services from credit institutions and banks.
We outline below the controversial case between credit institutions and banks with the Vietnamese tax authorities over the years:
On 22 April 2020, the General Department of Taxation (“GDT”) issued the Ruling No. 1606/TCT-DNL to confirm that Letter of Credit (“LC”) services provided by credit institutions and banks in Vietnam from 1 January 2011 are subject to VAT since they are classified as payment services. The GDT also requested local tax offices in cities and provinces to review this tax practice at credit institutions and banks to ensure that VAT is charged on LC services.
On 30 November 2023, the GDT issued the Ruling No. 5366/TCT-DNL and Ruling No. 5367/TCT-DNL to request credit institutions and banks in Vietnam to declare and pay VAT as per the Law on VAT, Law on Credit Institutions (2010) and relevant laws. In these Official Letters, the GDT reiterated that if credit institutions and banks in Vietnam adjust of VAT declarations, pay the additional VAT and interest on late tax payments prior to the tax office’s audits at their premises then no administration penalties are charged on tax administration violations.
On 27 December 2023, Vietnam Banks’ Association sent the letter to the GDT and Ministry of Finance (“MOF”) to argue that LC services should be considered as credit services for which no VAT is applied on their respective fees. At its solid attempt, Vietnam Banks’ Association recommended to the GDT and MOF to consider proposed measures that VAT adjustments for LC services should only be retroactively applied from November 2013 onwards and be centrally made once for every tax year by the credit institutions’ or banks’ head offices to their tax offices respectively, and that additional VAT and interest on late tax payments should be waived.
Lately, the GDT sent Ruling No. 6260/TCT-CS to the SBV and Ruling No. 681/TCT-CS to the Hanoi Tax Department on 25 December 2024 and 18 February 2025, respectively. In both rulings, the GDT confirmed that from 1 July 2024 only fees for LC issuances, LC confirmations, payment negotiations and LC resources are accepted as credit services fees as they defined in clause 4, clause 36, Article 4, the Law on Credit Institutions (2024) and clause 1, Article 3, Circular 21/2024/TT-NHNN of the SBV, and for that reason they are not subject to VAT.
Fees for other LC and related services defined in Chapter III, Circular 21/2024/TT-NHNN of the SBV are considered as payment services fees and be subject to 10% VAT.
Last but not least, VAT, penalties and interest on late tax payment on LC services fees from 1 January 2011 to 30 June 2024 are still a significant exposure to credit institutions and banks in Vietnam to resolve.
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This update summarises the important and latest changes in legal, tax and related practices in Vietnam. The analysis or comments herein are of general nature and are not intended to be nor should it be relied upon as the legal advice for the specific cases of any individual or entity.
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