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Effective July 1, 2024, Vietnam’s new Value-Added Tax (VAT) Law introduces significant changes to the country’s tax framework, reflecting the evolving dynamics of the digital economy. Under this law, foreign suppliers without permanent establishments in Vietnam will now be liable for VAT on goods and services sold to the country via e-commerce channels or other digital platforms.
Key Provisions of the 2024 VAT Law
Foreign Suppliers as VAT Payers
The law mandates that foreign suppliers engaged in e-commerce or digital platform transactions with Vietnam are subject to VAT. This move ensures fair competition between domestic and international providers while increasing Vietnam’s tax revenue from its growing digital economy.
Role of Platform Operators
The scope of VAT payers has been broadened to include:
- Foreign Digital Platform Operators: These entities are required to credit and pay VAT on behalf of foreign suppliers operating on their platforms.
- E-commerce Platform Operators: Platforms with payment functions must credit, declare, and pay VAT on behalf of households and individuals conducting business on their platforms.
- Domestic Businesses Using Credit Method: Organizations in Vietnam applying the VAT credit method and purchasing services from foreign suppliers via e-commerce or digital platforms must credit and pay VAT on behalf of these suppliers.
Expansion of Non-Taxable Items
The 2024 VAT Law also expands the list of non-taxable objects to include:
- Charges specified in loan agreements between the Vietnamese Government and foreign lenders.
- Goods are imported by financial leasing companies and transported directly to non-tariff zones for lease to enterprises operating in these zones.
- Goods are imported for the prevention, control, and mitigation of disasters, epidemics, and wars.
- National relics, antiques, and treasures are imported by competent state agencies as prescribed by law.
Increased Turnover Threshold for VAT Liability
Another noteworthy change is the raised turnover threshold for business households and individuals to be liable for VAT. The threshold has been doubled to VND 200 million from the previous VND 100 million, reducing the tax burden on smaller businesses.
Implications for Businesses
The new VAT law underscores the Vietnamese government’s proactive approach to adapting its tax policies to the digital economy. Key takeaways for businesses include:
- Compliance Requirements: Foreign suppliers and platform operators must establish robust mechanisms to meet their VAT obligations.
- Support for Domestic Enterprises: By raising the VAT liability threshold, the law supports small businesses while maintaining tax equity.
- Encouragement for Transparency: The inclusion of platform operators in tax collection processes ensures better oversight and accountability in e-commerce transactions.
Strengthening Vietnam’s Tax Framework
Vietnam’s 2024 VAT Law represents a significant advancement in the country’s tax system, aligning it with international practices. By addressing the complexities of digital transactions and expanding the tax base, the law aims to foster a fair and sustainable tax environment that supports Vietnam’s economic growth in the digital age.
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