VAT on Preliminary Processing and Processing of Agricultural Products

Are you confused about the application of VAT for the preliminary processing and processing of agricultural products? This article provides detailed and easy-to-understand information on this topic, based on Law on Food Safety 2010 and Circular No. 26/2015/TT-BTC.

According to Clauses 4 and 16, Article 2 of Law on Food Safety 2010:

• Food processing means a process of preparing preliminarily processed food or fresh and raw food by an industrial or manual method to create food materials or food products.

• Preliminary processing of food means the treatment of cultivated, reared, collected, harvested, fished or exploited products to make ready-to-eat fresh and raw food or a food material or semi-finished products for the food processing stage.

The forms of preliminary processing and preservation are defined as per Clause 1, Article 1 of Circular No. 26/2015/TT-BTC as follows:

“1. Products from farming (including agro-forestry products), breeding, and aquaculture that are produced, caught, sold, or imported and are not processed into other products (hereinafter referred to as unprocessed) or have only been preprocessed.

Preprocessed products are those that have only been cleaned, dried, husked, ground, milled, threshed, split, cut, salted, put in cold storage (cooled or frozen), preserved with sulfur dioxide, sulfur solution, or other solutions, and other common means of preservation.

Example 2: Company A signs a contract to raise pigs with Company B, under which Company B provides studs, feeds, and veterinary medicines for Company A and Company A provides, and sells pig products to Company B. The payment for pig breeding paid by company B and the pig products sold by company A to company B are not subject to VAT.

With regard to pig products received by company B from company A: Whole pigs or fresh meat sold by company B are not subject to VAT; If company B further processes pigs into products such as sausage, bacon, grilled chopped meat, or other finished products, they shall be subject to VAT as prescribed.”

Determining the preliminary processing and processing activities of agricultural products for VAT application requires understanding the nature of the activities and the relevant legal provisions. This article has provided you with the basic information to better understand this issue.

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