I. Legal basis 

• Decree No. 123/2020/ND-CP
• Official Dispatch No. 54756/CT-TTHT
• Official Dispatch No. 323/TCT-CS

II. The concept of “collecting on behalf” and “paying on behalf of”

“Collection” and “pay for” are two terms in the fields of finance, accounting and management, often used in businesses, organizations or companies related to collecting and spending money. Specifically:

• Collection: Is the collection of money or property on behalf of another organization or individual, usually taxes, fees, or other amounts authorized to be collected by organizations or state agencies. The collector will collect and transfer that amount to the recipient (usually a state agency, organization, or individual with the right to receive). 
• Support: Is the payment of money on behalf of another organization or individual, usually in payments such as salaries, service fees, or other expenses. The payer will pay the expense from his or her own funds and will then be reimbursed from the party authorizing the payment.

III. Do I have to issue an invoice to collect and pay on my behalf?

According to Official Dispatch No. 323/TCT-CS dated January 21, 2020 of the General Department of Taxation, Official Dispatch No. 54756/CT-TTHT dated August 14, 2017 of Hanoi Tax Department, when selling goods or providing services, the seller must issue an invoice to deliver to the buyer, including the following cases:

• Goods and services used for promotion, advertising, samples, giving, giving away, giving away, exchanging, paying instead of wages to workers and for internal consumption, except for goods circulated internally to continue the production process;
• Exporting goods in the form of loan, loan/return of goods.

Thus, when collecting or paying on behalf, an invoice will have to be issued, except in cases where goods are circulated internally to continue the production process. Specific regulations are as follows:

• Collection: When a business collects taxes, fees, or money from customers on behalf of its partners, the business must issue a VAT invoice for this collection because it is related to the business’s operations (the business plays the role of collecting money on behalf of its partners). However, when paying back the money collected on behalf of the partner, the business does not need to declare and pay tax on the money collected on behalf of the business, because this is not revenue generated by the business but is only money collected on behalf of the partner.
• Payment on behalf of the invoice is in the customer’s name: When a business makes a payment on behalf of a customer and the invoice arises in the customer’s name, the business will not need to issue an invoice when collecting payment on behalf of the customer. At the same time, businesses do not have to declare and calculate VAT because this recovery is only a refund of expenses and not the business’s revenue.
• Payment on behalf of the invoice bears the name of the company paying on behalf: In case the enterprise pays on behalf and the invoice is in the company’s name, that means the enterprise makes the payment on behalf of the partner and the invoice arises in the name of the enterprise. When collecting payment from customers, businesses need to issue VAT invoices and declare VAT on this revenue. VAT will be applied at the tax rate corresponding to the type of goods or services related to the payment.

IV. Which account should collections and payments be recorded into?

• How to account for household income:

• • When collecting on behalf of customers: Debit Account 111, 112 / Credit Account 3388
  • When returning money collected on behalf: Debit Account 3388 / Credit Account 111, 112

• How to account for household expenses:

• • When making payments on behalf of customers: Debit Account 1388 / Credit Account 111, 112
  • When receiving payment back: Debit Account 111, 112/ Credit Account 1388

At the same time, businesses need to gather other relevant documents accompanying the receipts such as: 

• Authorization document for collection;
• Collection agreement contract; 
• Detailed list for each household revenue;
• VAT invoice of the third party related to the collection (if any);
• Minutes of handing over documents according to regulations. 

In short, Determining whether to issue an invoice or not needs to be based on the contract, the nature of the transaction, and how the business records its accounting books. To avoid violating tax and invoice laws, consultation with an accountant or legal expert is necessary.

V. About Us, Hankuk Law Firm

■ Hankuk Law Firm – Introduction

The goal of the legal services provided by HANKUK LAW FIRM is to support businesses, investors, and people. Our organization employs skilled Korean lawyers, partners, and professionals to provide legal services to businesses related to corporations and litigation.

To support the startup process, our lawyers and staff provide a wide range of services, including business law consulting, tax and immigration law consulting, real estate services, business consulting, marketing and communications, human resources, product distribution, franchise options, etc. We provide expert advice on every aspect of your business needs.

To protect the legitimate rights and interests of our clients and achieve the best results, we provide legal advice and participate in civil lawsuits related to business, labor, marriage, family, and inheritance.

■ Contact us now

For reliable and effective legal advice, please contact HANKUK LAW FIRM now. We are committed to providing you with the best possible answers and our team of experienced lawyers has extensive knowledge in many legal fields. We are always here to provide the most competent and dedicated support, whether you are dealing with contractual issues, commercial disputes or need guidance on foreign investment. HANKUK LAW FIRM is honored to have assisted hundreds of domestic and international clients in skillfully resolving complex legal issues as their trusted legal partner. Do not let legal issues hinder your success. Let us accompany you towards legal achievement and comfort. For prompt guidance and support to ensure your rights are always maintained at the highest standards, contact HANKUK LAW FIRM now.

■ Contact Hankuk Law Firm:

Website: http://hankuklawfirm.com/en/  FB: https://www.facebook.com/hankuk.lawfirm  Tiktok: https://www.tiktok.com/@hankuklawfirm Youtube: https://www.youtube.com/@hankuklawfirm6375 Email:  info@hankuklawfirm.com   SĐT: 0369.77.11.46