In late November 2024, Vietnam National Assembly passed the new Law on Value Added Tax (VAT) (the new VAT Law) and the law on amending and supplementing certain articles of 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 (Law on Amendments).

Release of the new VAT Law follows the recent release of draft Law (See EY Global Tax Alert, Vietnam proposes VAT increase on foreign suppliers' e-commerce and digital platform revenue, dated 4 November 2024).

1. The new VAT Law

As previously proposed, the new VAT law, replacing the VAT law No. 13/2008/QH12 and the relevant amended laws adopts significant changes to VAT applicable to the revenue of foreign suppliers conducting e-commerce or digital platform-based business without a permanent establishment in Vietnam.

Taxpayers

The new VAT Law further clarifies which taxpayers from e-commerce and digital platform-based businesses are included the following categories:

• Foreign suppliers without a permanent establishment in Vietnam that conduct e-commerce or digital platform-based business with organizations and individuals in Vietnam (Foreign Suppliers)
• Organizations that manage foreign digital platforms and are responsible for deducting and paying tax on behalf of Foreign Suppliers
• Business organizations in Vietnam that apply the VAT credit method and purchase services from Foreign Suppliers, and thereby deduct and pay tax on behalf of Foreign Suppliers
• Organizations that manage e-commerce trading platforms performing the functions of payment, declaration, and payment of tax on behalf of business households and individuals doing business on the platform

Tax implications          

Foreign Suppliers conducting e-commerce or digital platform-based business currently declare and pay VAT liability on the percentage (%) applicable to their revenue. The percentage varies depending on type of income (e.g., 5%, 3%, 2% or exempt). Under the new VAT law, it is inferred that the relevant VAT rate of 10%, or 5% or exempt shall be applied on their respective revenue instead. For instance, services that typically apply a percentage of 5% on revenue would be subject to VAT rate of 10% on revenue.

In addition, the new VAT Law indicates that tax payment documents from Foreign Suppliers would be considered valid for purposes of their business customers' claiming input VAT. The Government will provide specific requirements for tax payment documents in a guiding Decree.

No proposals for changes to the determination of corporate income tax (CIT) obligation are included in the latest draft Law on CIT. Foreign Suppliers currently pay CIT based on the percentage applicable to revenue of 5% on their total taxable revenue in Vietnam.

The above imminent changes might not affect businesses that are producing VAT-taxable goods and services, because the increased input VAT charged by Foreign Suppliers will be creditable against their output VAT. Meanwhile, individual customers or businesses that are producing non-VAT taxable goods and services could bear higher indirect tax costs.

Effective date

The new VAT Law becomes effective from 1 July 2025.

2. The Law on Amendments

Among many other amendments, the Law on Amendments revises the Law on Tax Administration with provisions relevant to Foreign Suppliers conducting business in Vietnam through e-commerce and digital platforms.

In the current domestic laws and regulations, Foreign Suppliers that conduct business in Vietnam through e-commerce or digital platforms are regarded as Foreign Suppliers without Permanent Establishment (PE). This has led some Foreign Suppliers to use this status to claim tax exemptions under relevant Double Tax Treaties. To avoid confusion between the concept of PE in domestic laws and international tax treaties, the new law refers only to Foreign Suppliers who conduct business in Vietnam through e-commerce or digital platforms and does not mention their PE status. PE status should be determined based on the actual business model of the Foreign Suppliers.

Current regulations do not require owners of e-commerce and digital platforms to withhold, declare or pay tax on behalf of business households or individuals; instead, business households and individuals shall register and pay taxes directly to the tax authorities. The new law stipulates that owners of e-commerce and digital platforms with payment functions, including local and foreign platform owners, are required to withhold, declare and pay taxes on behalf of business households and individuals. There are certain exceptions in which business households and individuals are not subject to this withholding scheme and will have to directly register and pay taxes. The guiding Decree will provide further guidance in this regard.

Effective Date: The Law on Amendments becomes effective from 1 January 2025, except the provisions on Foreign Suppliers conducting business in Vietnam through e-commerce and digital platforms, which will take effective from 1 April 2025.