Non-bank lenders face tax

Nguyen Thi Hong Duong, senior associate,

Indochine Counsel

Under Article 5.8 of the Law on Value-Added Tax, lending and other credit services are not subject to VAT. Decree No 121/2011/ND-CP of December 2011, in Article 1.5, further defines credit services to include loans; discount of valuable papers; guarantees; financial leasing; issuance of credit cards; domestic and international factoring services; and other credit forms in accordance with the laws.

In light of these provisions, many non-banking or non-credit enterprises with money to lend have asserted that the interest income from those transactions is VAT exempt.

Contrary to this position, however, the Government Office issued Official Letter No 608/VPCP – KTTH on February 4. The letter provided that only "credit services" as defined under the Law of Credit Organisations were exempt from VAT. The letter discouraged non-credit enterprises from implementing credit services and state that such enterprises which have income from credit services would be liable to VAT on those services.

While an official letter is merely an interpretation of the law and does not have legal effect, it is nevertheless persuasive in its interpretation and will likely be effective in making non-credit enterprises with interest income liable for VAT. No other legal documents or regulations are available to clarify the situation.