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In October 2024, the Vietnamese Government submitted a draft amended law on Value-Added Tax (VAT) to the National Assembly for appraisal. The proposed amendments introduce significant changes, particularly in the taxation of foreign suppliers conducting e-commerce or digital platform-based business in Vietnam. These updates aim to enhance tax compliance and address the evolving digital economy.
Taxpayers Affected
The draft VAT law clarifies the categories of taxpayers are e-commerce and digital platform-based businesses subject to VAT:
- Foreign Suppliers: Foreign entities without a permanent establishment in Vietnam conducting e-commerce or digital platform-based business with Vietnamese customers.
- Platform Managers: Organizations managing foreign digital platforms responsible for deducting and remitting VAT on behalf of foreign suppliers.
- Vietnamese Business Organizations: Domestic organizations applying the VAT credit method that purchase services from foreign suppliers and deduct VAT on their behalf.
- E-Commerce Platform Operators: Entities managing e-commerce trading platforms that handle payment, tax declaration, and remittance for business households and individuals operating on their platforms.
Proposed Tax Implications:
- VAT Rates on Revenue: The draft law proposes a shift to fixed VAT rates of 10%, 5%, or exemptions, depending on the type of income. This replaces the current practice of varying VAT percentages (e.g., 5%, 3%, 2%, or exempt) based on income type.
- For example, services that currently attract a 5% VAT rate may now be subject to a 10% VAT rate.
- Input VAT for Businesses: Tax payment documents issued by foreign suppliers will now be valid for Vietnamese businesses to claim input VAT credits. The Government will outline specific documentation requirements in a guiding decree.
- Corporate Income Tax (CIT): The draft law does not propose changes to the determination of CIT obligations. Foreign suppliers will continue to pay CIT at a rate of 5% of their total taxable revenue in Vietnam.
Impacts on Stakeholders:
- Businesses Producing VAT-Taxable Goods and Services: These entities are unlikely to be adversely affected as they can credit the increased input VAT against their output VAT obligations.
- Businesses Producing Non-VAT Taxable Goods and Services: These businesses, along with individual consumers, may face higher indirect tax costs due to the increased VAT rates on services provided by foreign suppliers.
- Foreign Suppliers: The changes underscore the need for foreign suppliers to ensure compliance with Vietnam’s tax regulations, particularly in documentation and reporting.
The amended VAT Law is anticipated to be passed by the National Assembly in late November 2024 and is set to take effect from July 1, 2025.
The draft amendments to Vietnam’s VAT law represent a significant step toward modernizing the country’s tax regime to address the complexities of the digital economy. Businesses and foreign suppliers must prepare for these changes, ensuring compliance with new VAT rates and documentation requirements to avoid disruptions.
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