Tax Obligations of REC and CER Trading in Vietnam

Trading RECs and CER in Vietnam contributes to a greener future. But are you clear on the tax implications? This insight unpacks VAT and CIT obligations for REC and CER transactions, keeping you compliant and thriving in Vietnam’s sustainable market.

According to the provisions of Clause 3, Article 2 of Decree 209/2013/ND-CP (Decree on Detailing and guiding implementation of a number of articles of law on Value-Added Tax, Government of Vietnam) and Clause 1, Article 5 of Circular 219/2013/TT-BTC (Circular about Guidance on implementation of the law on the Value-Added Tax and the government’s Decree No.209/2013/ND_CP dated December 18, 2013 providing guidance on some articles of the law on Value-Added Tax, Ministry of Finance of Vietnam), the following cases are not required to declare and pay VAT:

Clause 3, Article 2 of Decree 209/2013/ND-CP:

“3. Organizations and individuals receive amounts involving compensation, awards, subsidies, money for the transfer of emission rights and other financial revenues.”

Clause 1, Article 5 of Circular 219/2013/TT-BTC:

“1. An organization or individual receives a monetary compensation (including compensation for land and property on land that is withdrawn by a competent authority), bonus, allowance, or payment for the transfer of emission rights, or other revenues.

Any taxpayer that receives a monetary compensation, bonus, allowance, payment for transfer of emission rights, or other revenues must make a receipt for such revenues. The taxpayer shall make receipts for spending according to the spending purposes.”

Regarding CER Trading:

• According to The General Department of Taxation (Ministry of Finance of Vietnam), “Certified greenhouse gas emission reductions (CERs) are certified emission reductions issued by the CDM Executive Board to CDM projects. 1 CER is defined as one ton of CO2 equivalent.”.
• Based on these above clauses, there is an exemption for payments of VAT for “emission rights”; however, there is no clear mention of whether CER is included or not or a definition of “emission rights”. Therefore, it is hardly concluded that CER is exempted, which is in the progress of verification and conclusion from different relevant Ministries.

In terms of REC Trading:

• No clause and article in Vietnamese Law clearly conclude whether REC is considered as emission rights to be exemption of paying Value-Added Tax. Nevertheless, the Vietnamese Authorities such as the General Department of Taxation of the Ministry of Finance, the Ministry of Industry and Trade, and so on have guiding documents for some specific cases of REC Trading relating to payments of VAT:
  • GENERAL DEPARTMENT OF TAXATION (Ministry of Finance of Vietnam): REC is not defined as carbon credits or greenhouse gas emission reduction credits as prescribed in Clause 35, Article 3 of the Law on Environmental Protection 2020 (carbon credit means any tradable certificate representing the right to emit one ton of carbon dioxide (CO2) or one ton of carbon dioxide (CO2) equivalent) and is not within the scope of Decree No. 06/2022/ND-CP dated January 7, 2022, of the Government regulating greenhouse gas emission reduction and ozone layer protection.

“In case a production and business establishment have REC transfer activities, the VAT rate of 10% shall be applied according to the provisions of Article 11 of Circular No. 219/2013/TT-BTC of the Ministry of Finance” (General Department of Taxation, Ministry of Finance of Vietnam)

• • MINISTRY OF INDUSTRY AND TRADE: “According to the provisions of the Law on Environmental Protection 2020, RECs are not defined as greenhouse gas emission reduction credits. Currently, Vietnam does not have a mechanism or policy to manage REC trading and exchange activities. It is necessary to conduct research and learn more about international experience in this field.”

• • MINISTRY OF NATURAL RESOURCES AND ENVIRONMENT: Decree No. 06/2022/ND-CP dated January 7, 2022, of the Government stipulates: “01 carbon credit is equal to 01 ton of CO2 equivalent (Point b, Clause 2, Article 1). Therefore, REC is not a carbon credit or greenhouse gas emission quota and is not within the scope of the provisions of Decree No. 06/2022/ND-CP dated January 7, 2022, of the Government.”

• Notably, in the practice of REC Trading, to mitigate potential legal risks and operational challenges, many businesses are willing to additionally pay the VAT in purchasing or selling the REC.

According to the provisions of Circular No. 78/2014/TT-BTC dated June 18, 2014, of the Ministry of Finance of Vietnam guiding the implementation of Decree No. 218/2013/ND-CP dated December 26, 2013, of the Government stipulating and guiding the implementation of the Law on Corporate Income Tax, income from the first transfer of CERs certificates of enterprises will be exempt from tax, and subsequent transfers must pay CIT according to regulations. Especially, this provision applies only to CERs certificates under the CDM since “CERs is an abbreviation for the term “Certified emission reductions” as defined by the United Nations Framework Convention on Climate Change (UNFCCC). CERs is a term specifically applied to CDM under the Kyoto Protocol, under the UNFCCC.” (Ministry of Natural Resources and Environment).

• “Income from the first transfer of emission reduction certificates (CERs) of enterprises granted emission reduction certificates; subsequent transfers are subject to corporate income tax according to regulations. Income from the transfer of emission reduction certificates (CERs) that are exempt from tax must ensure that when selling or transferring emission reduction certificates (CERs), they must be confirmed by competent environmental authorities according to regulations.”

Sources:

Clause 3, Article 2 of Decree 209/2013/ND-CP and Clause 1, Article 5 of Circular 219/2013/TT-BTC.

Circular No. 78/2014/TT-BTC dated June 18, 2014, of the Ministry of Finance.

https://thuvienphapluat.vn/van-ban/EN/Thue-Phi-Le-Phi/Circular-No-219-2013-TT-BTC-guidance-Law-on-value-added-tax-and-Decree-No-209-2013-ND-CP/224105/tieng-anh.aspx

https://thuvienphapluat.vn/phap-luat/chung-chi-cers-la-gi-co-phai-dong-thue-thu-nhap-doanh-nghiep-tu-chuyen-nhuong-chung-chi-cers-hay-kh-398049-160206.html (Translation)

https://luatvietnam.vn/dau-tu/quyet-dinh-130-2007-qd-ttg-chinh-phu-32458-d1.html (Translation)