Currently, in many construction implementation contracts, the parties often agree on a contract value that includes value-added tax (VAT). However, errors in determining the applicable VAT rate often occur, leading to errors in calculating the total contract value. Therefore, this article will provide guidance on accurately determining the VAT rate to assist parties involved in construction implementation contracts. 

See more: The value of liquidated damage clause in construction contracts

1. Determining the Value-Added Tax rate  

To accurately determine the VAT rate, the parties need to clarify the types of goods and services provided by the contractor under the construction implementation contract. During the execution of the contract, the contractor may provide not only construction and installation services but also materials and supplies for the construction work, depending on the terms of the contract. Specifically, when entering into the construction implementation contract, the contractor may fall into one of the following cases:  

(1) Providing only construction and installation services

In this case, the materials and supplies needed for the construction work will be provided by the employer or the third party designated by the employer. The contractor is not responsible for the quality of these materials and supplies, unless otherwise agreed upon by the parties. 

The applicable VAT rate in this case is 8% (as this service is eligible for VAT reduction). 

(2) Providing construction, installation services, and partial/full materials and supplies  

In this case, the contractor is only responsible for the quality of the materials and supplies they provide, unless otherwise agreed upon by the parties.  

The applicable VAT rate in this case is determined as follows:  

• The VAT rate for construction and installation services is 8% (as this service is eligible for VAT reduction).(1)

• The VAT rate for materials and supplies is either 8% or 10%, depending on the specific case. 

• Materials and supplies that are made of or from stone, sand, gravel, clay, steel… are subject to the 10% VAT rate.

Under Article 1 and Appendix I of Decree 180/2024/ND-CP and Resolution 174/2024/QH15, these materials and supplies are classified as goods that are not eligible for the VAT reduction (from 10% to 8%).   

Specifically, materials and supplies listed in the “List of goods and services not eligible for VAT reduction” in Appendix I of Decree 180/2024/ND-CP will be subject to the 10% VAT rate. 

• For materials and supplies not falling into the above category, the VAT rate of 8% applies (as they are eligible for the VAT reduction).(2)

2. Handling incorrect VAT rate determination 

If the parties incorrectly determine the VAT rate in the construction implementation contract, leading to errors in calculating the total contract value and incorrect payment amounts, the following steps should be taken: 

• The parties shall sign an Appendix to the Construction implementation contract to adjust the total contract value.(3) 

• The contractor shall issue a corrected VAT invoice to the employer.(4)

• The employer shall pay the outstanding amount or the contractor shall refund the excess amount. 

• The contractor shall declare an additional VAT dossier.(5)

• The deadline for declaring the additional VAT dossier is 10 years from the submission deadline of the tax period seeing errors. 

• Additional declaration can only be made in the following cases: 

• • Before the tax authorities or competent authorities issue the tax examination or tax inspection decisions.

• • The dossier is not within the scope or period of the tax examination or tax inspection specified in such decisions. 

For issues within the scope of the tax examination or inspection, the taxpayer may submit additional documentation under tax laws, inspection regulations, and the conclusions or guidelines from the relevant competent authorities regarding the determination of their tax obligations. 

(1) Article 1 and Appendix I of Decree 180/2024/ND-CP and Resolution 174/2024/QH15. 

(2) Article 1 and Appendix I of Decree 180/2024/ND-CP and Resolution 174/2024/QH15. 

(3) Article 143 of the Construction Law 2014. 

(4) Article 7.1(e) of Circular 78/2021/TT-BTC. 

(5) Article 47.1 of the Law on Tax Administration 2019 (amended by Article 6.6(a) of the Law amending the Securities Law, the Accounting Law, the Independent Audit Law, the State Budget Law, the Law on Management and Use of Public Assets, the Law on Tax Administration, the Law on Personal Income Tax, the Law on National Reserves, the Law on Handling of Administrative Violations 2024).