In late November 2024, the National Assembly of Vietnam enacted a new Law on Value Added Tax (VAT) along with amendments that significantly affect various regulatory frameworks, including the Law on Securities, Law on Accounting, Law on Independent Auditing, Law on State Budget, Law on Management and Use of Public Property, Law on Tax Administration, Law on Personal Income Tax, Law on National Reserves, and Law on Handling Administrative Violations. The release of the new VAT Law follows the recent publication of a draft law that proposed a VAT increase on revenue generated by foreign suppliers operating in e-commerce and digital platforms.
Overview of the New VAT Law: The new VAT Law replaces VAT Law No. 13/2008/QH12 and its amendments, implementing substantial changes aimed at foreign suppliers who engage in e-commerce or digital platform-based activities in Vietnam without establishing a permanent presence.
Taxpayer Definitions: The revised VAT Law provides clarity on the categories of taxpayers involved in e-commerce and digital platform operations:
Foreign Suppliers: Entities without a permanent establishment in Vietnam that conduct e-commerce or digital platform-based transactions with Vietnamese individuals and organizations.
Platform Operators: Organizations responsible for managing foreign digital platforms tasked with withholding taxes on behalf of foreign suppliers.
Vietnamese Businesses: Local firms that utilize the VAT credit method when procuring services from foreign suppliers, thereby assuming the responsibility to deduct and remit taxes on their behalf.
E-Commerce Platforms: Organizations managing trading platforms that handle payment, declaration, and tax payment on behalf of business households and individuals utilizing their services.
Tax Implications Currently, foreign suppliers engaged in e-commerce declare and pay VAT based on a percentage of their revenue, which can vary (e.g., 5%, 3%, 2%, or exempt). Under the new VAT regime, however, specific VAT rates of 10%, 5%, or exempt status will apply directly to their revenue. For example, services that previously incurred a VAT of 5% will now incur a 10% VAT applicable to their revenue. Furthermore, the new VAT Law stipulates that tax payment documentation from foreign suppliers will be valid to enable their business customers to claim input VAT.
The government will issue precise requirements regarding tax payment documentation through a guiding decree. It’s notable that the proposed amendments have not altered the framework governing corporate income tax (CIT) obligations. Foreign suppliers will continue to pay CIT based on a 5% rate of their total taxable revenue generated in Vietnam. These imminent changes are unlikely to impact businesses that produce goods and services subject to VAT, as the elevated input VAT from foreign suppliers will remain creditable against their output VAT. However, individual customers or businesses producing non-VAT taxable goods and services could see an increase in their indirect tax burdens.
Effective Date: The new VAT Law is set to take effect on July 1, 2025.
Amendments Overview: In addition to the VAT Law, the amendments to various laws include significant updates to the Law on Tax Administration, particularly concerning foreign suppliers conducting e-commerce and digital platform businesses in Vietnam. Under current regulations, foreign suppliers are classified as entities without a permanent establishment, allowing them to benefit from certain tax exemptions via applicable double tax treaties. The new law seeks to eliminate any ambiguity regarding the definition of permanent establishment by focusing exclusively on foreign suppliers participating in e-commerce and digital platforms without referencing their PE status.
The determination of PE status will be based on the specific business models of these suppliers. Presently, the owners of e-commerce and digital platforms are not mandated to withhold, declare, or remit taxes on behalf of business households or individual taxpayers, who are expected to handle their tax obligations directly. However, the new law will impose requirements on owners of e-commerce and digital platforms with payment functionalities, including both local and international platform operators, to withhold, declare, and pay taxes on behalf of business clients. There will be exceptions where specific business households or individual taxpayers will still be responsible for their tax registrations and payments. Further details will be clarified in an accompanying decree.
Effective Date for Amendments: The Law on Amendments will come into effect on January 1, 2025, with the provisions governing foreign suppliers in e-commerce and digital platform transactions taking effect on April 1, 2025. As Vietnam transitions into these new regulations, stakeholders—both local and international—should prepare for the forthcoming changes to ensure compliance and optimize their tax strategies accordingly.
