Circular 78 & Decree 123 regulate electronic invoices – New

Detailed answers about converting to electronic invoices, how to use electronic invoices, when it is mandatory to use electronic invoices and the form, types of electronic invoices…

I. Legal basis

• Pursuant to the Law on Tax Administration No. 38/2019/QH14 issued on June 13, 2019;
• Pursuant to Decree No. 123/2020/ND-CP issued on October 19, 2020;
• Pursuant to Circular 78/2021/TT-BTC issued on September 17, 2021.

II. New regulations on electronic invoices according to Circular 78 & Decree 123

Decree 123 and Circular 78 update many new regulations on the use of electronic invoices, creating favorable conditions for electronic transactions between individuals, businesses with customers and state agencies. To ensure that you receive the benefits from the new regulations on electronic invoices as well as properly fulfill your obligations, avoiding administrative penalties, you need to grasp the basic but very important information below.

1. What is an electronic invoice?

According to Decree 123: “An electronic invoice is an invoice with or without a tax authority code in the form of electronic data created by an organization or individual selling goods or providing services, recording sales information or providing services in accordance with the provisions of the law on accounting and tax, including cases where the invoice is created from a cash register connected to transfer electronic data to the tax authority”.

2. Classification of electronic invoices

Currently, electronic invoices include the following types:

• Sales invoice;
• Value Added Tax (VAT) invoice;
• Electronic invoices related to the sale of public assets;
• Electronic invoices are used when selling national reserve goods;
• Other types of invoices: stamps/tickets/electronic cards, air freight receipts, international freight receipts or internal/consignment delivery notes.

3. Form of electronic invoice 

There are 3 forms of electronic invoices required to be used according to new regulations that you need to note, including:

3.1. Electronic invoice with tax authority code

• An electronic invoice is issued a code by the tax authority before an organization or individual sells goods or provides services and sends it to the buyer;
• The tax authority code shown on the electronic invoice includes a series of transaction numbers and a string of characters, in which:
  • The transaction number is a unique number generated by the tax authority’s system;
  • The character string is encoded by the tax authority based on the invoice information created by the seller.

3.2. Electronic invoices without tax authority codes

• An electronic invoice sent by an organization selling goods or providing services (regardless of the value of each sale/provision of goods or services) to a buyer without a tax authority code.

3.3. Electronic invoices are generated from cash registers.

• It is a form of invoice with or without a tax authority code, initiated from a cash register with an electronic data transfer connection to the tax authority.

III. Regulations on subjects using electronic invoices

1. Electronic invoice with tax authority code

1.1. General regulations on subjects using electronic invoices with tax authority codes

• For businesses: 
  • Enterprises with high tax risks and notified by tax authorities about converting electronic invoices from electronic invoices without codes to electronic invoices with tax authority codes;
  • Enterprises that are using electronic invoices without codes, if needed, can submit an application to switch to using electronic invoices with codes from the tax authorities. Except for cases where enterprises and economic organizations use electronic invoices without codes from the tax authorities.
• Households and individual businesses:  
  • Tax payment by direct declaration method must use electronic invoices;
  • Paying taxes by lump sum method, if there is a request to use invoices, the tax authority will issue individual electronic invoices for each occurrence;
  • Tax declaration and payment for each occurrence, if there is a request to use invoices, the tax authority will issue individual electronic invoices for each occurrence.

1.2. Subjects applicable to sales invoices

According to the new regulations, the following entities are issued invoices with tax authority codes for each occurrence of sales invoices:

• Households and business individuals do not meet the conditions for using electronic invoices with tax authority codes but need invoices to issue to customers;
• Organizations that do not conduct business but have transactions to sell goods and provide services;
• Enterprises that have been suspended, dissolved, bankrupt, or have had their tax codes terminated need electronic invoices to liquidate assets;
• Enterprises, economic organizations, and business individuals paying VAT by the direct method fall into the following cases: 
  • Enterprises that have ceased operations but have not completed the procedures to terminate the validity of their tax codes need to liquidate their assets;
  • The business has temporarily suspended operations but needs invoices to be delivered to customers for use in contracts signed before the announcement of temporary suspension of operations;
  • Businesses are forced to pay invoices by tax authorities.

1.3. Subjects applying value added tax (VAT) invoices

Issuing invoices with tax authority codes for each occurrence is a value-added invoice for the following subjects:

• Enterprises, economic organizations, and other organizations that pay VAT by the deduction method fall into the following cases: 
  • Enterprises that have ceased operations but have not completed the procedures to terminate the validity of their tax codes need to liquidate their assets;
  • The business has temporarily suspended operations but needs invoices to be delivered to customers for use in contracts signed before the announcement of temporary suspension of operations;
  • Businesses are forced to pay invoices by tax authorities.
• Organizations and state agencies that are not subject to VAT payment under the deduction method and auction assets in case of winning an auction with VAT will be issued VAT invoices by the tax authority for each occurrence.

2. Electronic invoices without tax authority codes

According to Clause 2, Article 91 of the Law on Tax Administration 2019 and Article 13 of Decree 123, the following cases are allowed to use electronic invoices without tax authority codes:

• Enterprises and business organizations operating in the following 15 fields: electricity, petroleum, post and telecommunications, transportation, aviation, road, railway, sea, waterway, clean water, credit finance, insurance, healthcare, e-commerce, supermarket business, and trade;
• Enterprises and economic organizations that meet the requirements of facilities, software systems for electronic invoicing, data lookup and storage according to regulations and can ensure data transmission to buyers and tax authorities;
• According to Clause 2, Article 5 of Circular 78 : Enterprises in high-risk tax cases are using electronic invoices with tax authority codes. After 12 months, if there is a need to switch to using electronic invoices without tax authority codes, they can submit a request to change the information on using electronic invoices to the tax authority. The tax authority will consider and decide based on Article 15 of Decree 123.

3. Electronic invoices are generated from the cash register.

• Subjects that are selected to use invoices created from cash registers with data transfer connections to tax authorities, with or without tax authority codes, include: businesses, households, and individuals that pay taxes by declaration and do business according to the model of providing goods and services directly to consumers such as: shopping centers, supermarkets, restaurants, hotels, retail of consumer goods, retail of pharmaceuticals, entertainment services and other services;
• Electronic invoices generated from cash registers must ensure the principles specified in Article 11 of Decree 123 :
  • Digital signature is not required;
  • Is an invoice printed from a cash register with electronic data connection to the tax authority;
  • Expenses are determined as expenses with sufficient legal invoices and documents when determining tax obligations for the purpose of purchasing goods and services using invoices generated from cash registers (or photocopied invoices or invoices looked up from the General Department of Taxation’s Electronic Information Portal).

IV. Regulations on conversion of electronic invoices

1. Convert paper invoices to electronic invoices

Using electronic invoices will help businesses and individuals conduct digitalization, optimize operating processes and save costs. Therefore, converting to electronic invoices is being prioritized and encouraged, especially in large provinces/cities. 

• According to Circular No. 78, from July 1, 2022, electronic invoices will be applied to all organizations, businesses, households and individual businesses;
• In addition, Decision No. 1832 stipulates that the pilot application of electronic invoices with tax authority codes will start from November 1, 2021 in Ho Chi Minh City and 5 other localities including: Hanoi, Phu Tho, Binh Dinh, Hai Phong, and Quang Ninh.

2. 5 benefits and advantages of electronic invoices

Using electronic invoices has many outstanding advantages over paper invoices, typically:

• Invoicing is easy, fast and error-free;
• Lower costs than using paper invoices (printing, shipping invoices, etc.);
• Easy storage, no worries about loss, fire, or damage;
• Convenient in receiving electronic invoices and paying directly online;
• Easily check invoice information on the tax authority system. Avoid using illegal invoices when the business that issued the invoice is no longer operating or has absconded.

V. Frequently asked questions about electronic invoices