The Ministry of Economy and Finance (MEF) recently issued an Instruction No.025 on Obligation for Domestic Suppliers to Pay Tax on Complimentary Good or Prize.

Instruction 025 clarifies the tax treatment for free-of-charge (“FOC”) goods and rewards given to customers by local enterprises. The salient points of Notification 025 are as follows:

1. Providing promotional items (FOC) from the Company’s inventory:
– For Specific Tax (“SPT”) and Public Lighting Tax (“PLT”, at 5% for the initial supply by the manufacturer/importer), SPT will be calculated based on market value of taxable goods.
– For Value-Added Tax (“VAT”, at 10%) and Prepayment Tax on Income (“PTOI”, at 1%), the taxes will be calculated based on the cost of the goods.
– For Tax on Income (“TOI”), the tax will be calculated based on cost of the goods.
– Proper records and sufficient documents are required to substantiate the granting of these benefits.
Please note that before the issuance of Instruction 025, FOC goods were taxed based on their market value. However, effective from October 10, 2024, only Specific Tax and PLT will be calculated based on market value. Conversely, VAT, PTOI, and TOI will now be determined based on the cost of the goods.

2. Providing promotional items that do not include normal inventory (e.g. phones/cars and other rewards acquired specifically for marketing efforts)
– These goods are not considered a supply of goods subject to VAT, PTOI, and TOI.
– Taxpayers are not allowed to claim the VAT paid on the purchase of these goods or rewards as an input tax credit. However, the VAT will become a “deductible expense” for TOI computation;
– Proper recording and sufficient documents are required to substantiate the granting of these benefits.
Taxpayers must fulfill following requirements to carry out these promotional programs:

– Maintain proper procedure and internal documentation on these promotional programs, approved by the management with detailed criteria or conditions (quantity, price, other terms for sale transactions to qualify for the promotion, and specify the program’s duration including start and end dates for the purpose of market expansion.
– Generally applicable to customers in accordance with the terms and conditions for sale transactions to qualify for the promotion, and
– Publicly announced.
For monthly tax declaration purposes, taxpayers are required to input the FOC data in a separate form – “Tax Sale Voucher” which is included as a annex to the Instruction No.025.

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