Vietnam’s 2024 VAT Law: Key Provisions and Changes to the VAT Regime

Posted by Written by Vu Nguyen Hanh Reading Time: 8 minutes

On November 26, 2024, Vietnam’s National Assembly passed the 2024 Law on Value-added Tax (VAT), scheduled to take effect from July 1, 2025. This article will guide investors and businesses through the most significant amendments of the law, as well as potential regulations that are under discussion.

Latest VAT updates in Vietnam

2024 VAT Law

The 2024 VAT Law comprises four chapters and 17 articles, which has put in place regulations on:

  • Taxable and non-taxable entities;
  • Taxpayers;
  • The basis and methods for tax calculation; and
  • VAT deduction and refunds.

It is expected that the official text of the 2024 VAT Law will be released no later than December 11, 2025. While the official text is currently unavailable, key changes have been announced, mainly dealing with VAT exemptions and refunds.

2 percent VAT reduction extended till end of June 2025

The National Assembly has passed a resolution extending the 2 percent VAT reduction for the first 6 months of 2025. Accordingly, goods and services subject to the 10 percent tax rate will continue to enjoy an 8 percent VAT rate until the end of June 2025.

The VAT reduction aims to boost consumption and support production by lowering the cost of goods and services. It does not apply to sectors like real estate, banking, and telecommunications.

Since 2022, VAT reductions have supported the Vietnam economy post-COVID-19. The total cost of the VAT reduction in 2024 was around VND 49 trillion (US$1.9 billion).

Key changes under 2024 VAT Law

Time to determine VAT

The determination of VAT is outlined as follows:

  • For goods:
    • The date of transferring ownership or usage rights to the buyer; or
    • The date an invoice is issued, regardless of whether payment has been received.
  • For services:
    • The date of completing the provision of services; or
    • The date an invoice is issued for the services, regardless of whether payment has been collected.

New tax-exempt revenue threshold

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A key provision of the new law is the increase in the tax-exempt revenue threshold, raised from VND 100 million (US$3,934) to VND 200 million (US$7,879) per year. In a report presented before the vote on the law, the Chairman of the National Assembly’s Finance-Budget Committee, Le Quang Manh, brought forward this amendment.

According to the Ministry of Finance (MOF), if the tax-exempt revenue threshold is set at VND 200 million per year, the number of taxable businesses will decrease by 620,653 entities, and the state budget revenue will decrease by about VND 2,630 billion (US$103.6 million).

However, the Government requested to be in charge of adjusting this revenue threshold in accordance with the socio-economic development situation of each period to ensure flexibility in management and suitable adaptation to real-life developments. This change is also believed to reflect a reasonable modification in alignment with the growth rates of Vietnam’s average gross domestic product (GDP) and consumer price index (CPI) since 2013.

With the approval from the National Assembly, goods and services of households and individuals doing business with a maximum annual revenue of VND 200 million will not be subject to VAT after the law enters effect.

VAT payable subjects

According to Article 4 of the draft law, entities entitled to pay VAT include:

  • Organizations, households, and individuals producing and trading goods and services subject to VAT (hereinafter referred to as business establishments).
  • Organizations and individuals importing goods subject to VAT (hereinafter referred to as importers).
  • Organizations and individuals producing and trading in Vietnam that purchase services from foreign organizations without a permanent establishment in Vietnam or individuals abroad who are non-residents in Vietnam.
  • Organizations producing and trading in Vietnam that purchase goods and services to conduct oil and gas exploration, development and exploitation activities from foreign organizations without a permanent establishment in Vietnam, individuals abroad who are non-residents in Vietnam.
  • Other taxpayers according to the provisions of the law on tax administration.

Applicable lists of a 0-percent and 5-percent tax rate

The 2024 VAT Law implements new lists of goods and services enjoying a 0-percent and a 5-percent tax rate.

Goods and Services Subject to a Zero Percent VAT Rate

Goods

– Goods sold from Vietnam to organizations or individuals abroad and consumed outside of Vietnam;

– Goods sold from the domestic market in Vietnam to organizations in tax-free zones for consumption within those zones, directly supporting export production activities;

– Goods sold in quarantine areas to individuals (both foreigners and Vietnamese) who have completed exit procedures; and

– Goods sold at duty-free shops.

Services

– Services provided directly to organizations or individuals overseas for consumption outside of Vietnam; and

– Services provided directly to organizations within tax-free zones, for consumption in those zones supporting export production activities.

Others

– International transportation;

– Rental services for vehicles used outside of Vietnam;

– Services in the aviation and maritime industries provided directly or through agents for international transportation;

– Construction and installation activities abroad or within tax-free zones;

– Digital content products provided to foreign entities with documentation proving consumption outside of Vietnam as per government regulations;

– Spare parts and materials for the repair and maintenance of vehicles, machinery, and equipment for foreign entities for consumption outside of Vietnam;

– Goods processed for export under legal provisions; and

– Goods and services exempt from value-added tax upon export, except in cases where the 0-percent tax rate is not applicable as prescribed in the law.

 

Goods and Services Benefiting from a Five Percent VAT Rate

Goods

– Clean water for production and domestic use, excluding bottled and canned drinking water and other beverages;

– Fertilizers, ores for fertilizer production, plant protection products, and animal growth stimulants as regulated by law;

– Products from crops and planted forests (excluding wood and bamboo shoots), livestock, aquaculture, and fish caught that have not been processed into other products or have undergone only basic processing, except for products specified in Clause 1, Article 5 of this Law;

– Latex rubber in forms such as smoked sheets, sheet latex, and crepe;

– Nets, ropes, and fibers for fishing nets;

– Products made from jute, sedge, bamboo, leaves, straw, coconut husks, and other handicrafts produced from agricultural by-products;

– Cleaned cotton, newsprint;

– Fishing vessels in offshore waters;

– Machinery and equipment specifically designed for agricultural production as regulated by the government;

– Medical equipment according to legal regulations on medical devices;

– Preventive and therapeutic medicines;

– Pharmaceutical products and medicinal materials used for producing medicines;

– Teaching and learning devices, including models, diagrams, boards, chalk, rulers, and compasses;

– Traditional and folk performing arts;

– Toys for children; and

– Books of all kinds, except for those specified in Clause 15, Article 5 of this Law.

 

Services

– Services for excavation and dredging of canals, ditches, ponds, and lakes for agricultural production;

– Cultivation, care, and pest control for crops;

– Preliminary processing and preservation of agricultural products;

– Scientific and technological services as regulated by the Science and Technology Law; and

– Sale, rental, or lease-purchase of social housing as per the Housing Law.

 

Cases not eligible for a zero-percent tax rate

The following cases are not applicable for the 0 percent tax rate:

  • Technology transfer and the transfer of intellectual property rights abroad;
  • Reinsurance services provided abroad;
  • Credit services;
  • Capital transfers;
  • Derivative products;
  • Postal and telecommunications services;
  • Export products as specified in Clause 23, Article 5 of this Law;
  • Tobacco, imported alcoholic beverages, and beer that are subsequently exported;
  • Fuel purchased domestically and sold to businesses in tax-free zones; and
  • Cars sold to organizations or individuals within tax-free zones.

The government will regulate the details of this clause. The MOF will establish procedures and documentation for applying the 0 percent VAT rate as specified above.

Updates on VAT exemptions

Prescribed exemption list of natural resource exports

Exported products that are goods processed from natural resources and minerals must adhere to a list established by the government for VAT exemption. Currently, if the combined value of the resources, minerals, and energy costs constitute 51 percent or more of the total product cost, those exported products will not be subject to VAT.

New subjects of VAT exemptions

Imported goods serving the prevention of natural disasters, epidemics, and wars will also not be subject to VAT.

Revised regulation on VAT refunds

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Article 14 of the draft Law on VAT adds the following cases of tax refund as follows:

Business establishments that produce goods or provide services subject to a VAT rate of 5 percent may qualify for a VAT refund if they have an input VAT amount of VND 300 million or more that has not been fully deducted after a period of 12 months or four quarters.

Prohibited actions in VAT deductions and refunds

The 2024 VAT Law prohibits the following actions in tax deduction and refund:

  • Buying, giving, selling, advertising, or brokering invoices;
  • Creating fictitious transactions for the sale of goods or the provision of services or transactions that do not comply with legal regulations;
  • Issuing invoices for the sale of goods or services during a period of business suspension, except in cases where invoices are issued to customers to fulfill contracts signed before the notice of business suspension;
  • Using illegal invoices or documents or improperly using government-specified invoices and documents;
  • Failing to transmit electronic invoice data to the tax authority as required;
  • Distorting information, misusing it, unauthorized access, or destroying the information system related to invoices and documents; and
  • Offering, receiving, or brokering bribes, or engaging in other actions related to invoices and documents to obtain tax deductions, refunds, embezzle tax money, or evade value-added tax.

Other amendments

The National Assembly has approved several provisions as part of the 2024 VAT Law, which will soon be detailed in the official text. These amendments include:

  • Adjustments to the list of items exempt from VAT.
  • Clarifications regarding taxable prices for goods and services used for promotional purposes.
  • An expansion of items that qualify for the 0-percent VAT rate.
  • Regulations concerning non-taxable products that will now be subject to a 5-percent VAT rate.
  • Changes to the regulations governing input VAT deductions.

Abolishing tax exemption for small-value imported goods via e-commerce platforms

The government has proposed eliminating tax exemptions for low-value imported goods sold through e-commerce platforms. This recommendation includes addressing the repeal of Decision 78/2010, citing concerns about unfair competition arising from the recent emergence of e-commerce platforms that sell goods to Vietnam at very low prices.

The National Assembly’s Standing Committee has acknowledged the situation and is urging the government to promptly issue a decree to manage customs for goods traded through e-commerce channels. This decree should ensure that there are no exemptions for low-value imports. Additionally, the committee has agreed to the immediate repeal of Decision 78, which will provide a legal basis for tax authorities to regulate and collect taxes from foreign e-commerce platforms selling goods in Vietnam.

Implications for stakeholders

Experts indicate that the forthcoming amendments are poised to introduce significant changes to tax regulations affecting various businesses in Vietnam, with particular emphasis on foreign suppliers engaged in e-commerce and digital platform operations. These updates are designed to enhance tax compliance and effectively address the evolving dynamics of the digital economy.

For foreign suppliers, these changes highlight the critical need to comply with Vietnam’s tax regulations, especially concerning documentation and reporting obligations.

Shifting to fixed VAT rates

  • VAT rates on revenue: The draft law introduces fixed VAT rates of 10 percent, 5 percent, or exemptions depending on the type of income, replacing the current system of varying rates (e.g., 5 percent, 3 percent, 2 percent, or exempt) based on income categories. For instance, services currently taxed at 5 percent VAT could be reclassified and subject to a 10 percent rate under the proposed changes.
  • VAT taxable goods and services: Businesses that produce goods and services subject to VAT are unlikely to face negative impacts since they can offset the increased input VAT against their output VAT obligations.
  • Non-VAT taxable goods and services: Businesses producing non-VAT taxable goods and services, along with individual consumers, may incur higher indirect tax costs due to increased VAT rates on services provided by foreign suppliers.

Allowing foreign suppliers’ tax payment documents

Foreign suppliers’ tax payment documents will now be acceptable for Vietnamese businesses to claim input VAT credits. The government is expected to specify the documentation requirements in a guiding decree.

No impact on corporate income tax (CIT)

The draft law maintains the current framework for determining Corporate Income Tax (CIT) obligations. As such, foreign suppliers will continue to be subject to a CIT rate of 5 percent on their total taxable revenue generated within Vietnam.

Conclusion

The 2024 VAT Law represents a significant shift in Vietnam’s tax framework, aimed at fostering a more flexible and responsive tax environment. The increase in the tax-exempt revenue threshold is a notable change that could alleviate the burden on a large number of small businesses, while the revised guidelines for VAT exemptions and refunds are designed to streamline processes and enhance compliance.

As businesses in Vietnam prepare for the new VAT law’s implementation on July 1, 2025, it is essential to stay informed about the detailed provisions and forthcoming official text, which will provide clarity on the specific regulations and any additional adjustments. Seeking professional and local expert tax and legal advice is advisable.

(This article was originally published November 27, 2024. It was last updated December 11, 2024.)

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