A business said that it signed a contract to design and construct the installation of electrical systems, machinery and electronic equipment for another company, the contract clearly stated the design and installation items and included raw materials and accompanying components. According to Decree on tax reduction 174/2025/ND-CP, design and installation services are subject to an 8% tax reduction, while accompanying materials such as copper and electric wires are not reduced, so the tax rate is still 10%.
This enterprise wonders: The contract value is the entire value including raw materials, so it cannot be separated. So in the case of construction and installation with raw materials according to the contract, will there be an 8% tax reduction for the entire contract value? And what tax rate should be applied to this case?
Responding to businesses' concerns, the Ho Chi Minh City basic tax authority explained:
Pursuant to the Law on Value Added Tax 48/2024/QH15, dated November 26, 2024 of the National Assembly;
Pursuant to Article 1 of Decree 174/2025/ND-CP dated June 30, 2025, regulating the policy of reducing value added tax according to Resolution No. 204/2025/QH15 dated June 17, 2025 of the National Assembly:
In Article 1: Reducing value-added tax
Reduced value-added tax for groups of goods and services currently subject to a tax rate of 10%, except for the following groups of goods and services:
Telecommunications, financial activities, banking, securities, insurance, real estate business, metal products, mining products (except coal). Details in Appendix I issued with this Decree.
The reduction of value-added tax for each type of goods and services specified in Clause 1 of this Article is applied uniformly at the stages of import, production, processing, and commercial business.
In case the goods and services mentioned in Appendices I and II issued with this Decree have differences in the value added tax rate or are unclear, they must comply with the provisions of the Law on Value Added Tax, which has been amended and supplemented in the Law on Value Added Tax No. 48/2024/QH15 dated November 26, 2024 and documents guiding the implementation of the Law on Value Added Tax.
Regarding the value-added tax rate:
Business establishments calculating value-added tax according to the deduction method shall apply a value-added tax rate of 8% for goods and services specified in Clause 1 of this Article.
Pursuant to Appendix I - List of goods and services not subject to reduction in value added tax rate attached to Decree No. 174/2025/ND-CP dated June 30, 2025 of the Government:
Level 242 stipulates: Copper products (From level 4 to level 7, detailed regulations for each Copper product).
Clause 4, Article 1 stipulates: "In case a business establishment as prescribed in Point a, Clause 2 of this Article applies different tax rates when selling goods or providing services, the value-added tax invoice must clearly state the tax rate of each goods and service as prescribed".
Based on the above regulations, in case the Company designs and installs electrical systems, electronic machinery and equipment accompanied by raw materials such as copper wires and electric wires. From July 1, 2025 to December 31, 2026, the following apply:
The company relies on physical items to compare Appendix I - List of goods and services not subject to value added tax rate reduction according to the following indicators: Names of goods and services; goods codes according to Appendix I - Decree No. 174/2025/ND-CP dated June 30, 2025 of the government to apply VAT rates according to regulations. In case goods and services are provided at the same time, there are different tax rates, production, processing, and commercial business.
The secondary tax rate in Ho Chi Minh City affirmed: The entire contract value is not entitled to the same VAT rate of 8%. Enterprises need to classify and apply a tax rate of 8% or 10% correctly depending on each item of goods and services included in the contract.
