Approved: Extended Tourist Visas, VAT Cut to 8 Percent

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Over the weekend, Vietnam’s National Assembly approved two key bills that may impact foreigners and foreign firms. Here’s what they are and why they matter.

Over the weekend, Vietnam’s National Assembly passed two key bills into law that would effectively see the rate of value-added tax (VAT) for the rest of the year reduced to 8 percent and tourist e-visas extended from the current 30 days to 90 days.

These changes are part of efforts to boost the local economy after a hard first half of the year, which saw exports decline amid slowing orders from key export markets, namely the US and the EU.

Here’s what foreign firms need to know about these changes.

VAT cut to 8 percent

Broadly speaking, the VAT is a consumption tax that applies to transactions in goods and services within Vietnam.

Normally levied at 10 percent, to the end of the year Vietnam VAT will be reduced to 8 percent.

The cut will apply to most sectors except for these – telecommunications, information technology, finance, banking, securities, insurance, real estate, metals and metal products, mining, refined petroleum, chemicals, and items subject to excise tax.

In February of 2022, under a similar policy, the Vietnamese government cut the VAT from 10 to 8 percent to boost the pandemic-hit local economy. The cut, which was in place until the end of December 2022, cost Vietnam’s state budget an estimated VND 49.4 trillion (US$2.2 billion).

This time around, the tax reduction is expected to hit the government’s bottom line to the tune of VND 24 trillion (US$1.02 billion).

This latest iteration of the VAT reduction is expected to follow the same basic guiding principles as the last VAT reduction. Though notably last time around there was some confusion as to how the policy was to be implemented.

“Nearly a month after this policy was introduced, the implementation [had] not been smooth and effective,” state media reported at the time.

These challenges, however, should be well understood now, and implementing the VAT tax reduction should be much easier this time.

This new cut will come into force on July 1 and remain in place until the end of the year.

E-visas extended to 90 days

Vietnam’s tourism industry has struggled to recover from the COVID-19 pandemic. One reason cited several times for this delay has been changes made to tourist visas in 2021.

These changes saw 90-day tourist visas done away with, limiting e-visas to just 30 days though with some exceptions – tourists on tours arranged by an agency could get longer visas.

It is hoped that by returning to pre-pandemic tourist-visa guidelines, tourist arrivals might also return to pre-pandemic levels.

Visa-free entry, for citizens of the 25 countries allowed to enter Vietnam without a visa, has also been extended from 15 days to 45 days for most countries.

But the benefits of these changes may take some time to be realized given the advanced planning required for travel abroad. Also, they are not due to take effect until the 15th of August toward the end of the summer holidays in the northern hemisphere.

Foreign firms that need assistance with visas and immigration or their tax planning and compliance obligations in Vietnam should contact the business advisory team at Dezan Shira and Associates.

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