Vietnam’s Value-Added Tax (VAT) Updates: Effective July 1, 2025
Introduction to Changes in VAT Regime
As of July 1, 2025, Vietnam’s Value-Added Tax (VAT) system is set to undergo significant revisions, aimed at enhancing transparency and aligning taxation with the current business landscape. With the introduction of Law No. 48/2024/QH15, Vietnam is ending the previous 2008 VAT Law and its subsequent amendments. Following this major legislative shift, various compliance requirements have been refined, necessitating businesses to reevaluate their adherence strategies.
Key Provisions Under the New VAT Law
Goods and Services Subject to 0-Percent VAT Rate
The revised VAT law specifies that goods and services exported to foreign entities, consumed outside Vietnam, will apply a 0-percent VAT rate. This is a critical incentive designed to stimulate exports. Notably, new provisions allow goods sold from Vietnam and delivered to a local company at a foreign entity’s request to qualify as an “on-the-spot export,” thus making them eligible for the 0-percent rate.
Implications for On-the-Spot Import and Export Activities
The tax authority has emphasized that all exported goods must be consumed outside Vietnam. In light of the adjustments brought by Law No. 90/2025/QH15, the previously existing on-the-spot import and export scheme is being reevaluated. This law redefines transactions where goods are delivered and received in Vietnam under specific contracts, potentially benefiting foreign traders by alleviating the need for physical presence in the country.
Practical Case Studies for VAT Application
Case 1: Direct Sales Under Foreign Directives
In instances where a Vietnamese firm sells goods purchased by a foreign enterprise directly to another Vietnamese entity, the 0-percent VAT rate cannot be applied. This change is pivotal as Vietnam transitions to a clearer regulatory environment, eliminating ambiguity for businesses involved in cross-border sales.
Case 2: Goods Stored in Bonded Warehouses
When goods are delivered to a bonded warehouse and then retrieved by another company, the tax implications hinge on the foreign company’s commercial presence in Vietnam. If absent, the status for applying the 0-percent VAT remains unclear. However, the recent legal updates clarify this ambiguity, ensuring smoother compliance for businesses engaged in such operations.
Non-Tariff Area Transactions
Transactions involving goods and services provided to organizations located in non-tariff areas may also be eligible for a 0-percent VAT rate. Conditions include direct consumption within the non-tariff area and a clear connection to export production activities, reflecting the law’s focus on export-oriented initiatives.
Changes in VAT Rates and Compliance Requirements
Increasing VAT Rates for Foreign Suppliers
From July 1, 2025, VAT rates for foreign suppliers without a permanent establishment in Vietnam conducting e-commerce will rise from 5 to 10 percent. This change includes a framework for these suppliers to register and issue VAT invoices compliant with Vietnamese regulations, allowing for offsets on future transactions.
Reclassification of Goods and Services
The new framework will reclassify goods and services into updated categories corresponding to the 5 and 10 percent VAT rates, necessitating businesses to stay informed on the materials relevant to their operations.
Adjusted Compliance Thresholds
Non-Cash Payment Requirement
Under the new regulation, businesses must secure non-cash payment receipts for transactions exceeding VND 5 million (approximately $200), inclusive of VAT, a marked change from previous legislation.
Annual Revenue Threshold for Exemptions
Starting January 1, 2026, the tax-exempt revenue threshold for individual businesses and households will increase from VND 100 million ($3,900) to VND 200 million ($7,900), reflecting a shift in compliance standards to accommodate growing businesses.
VAT Refund Regulations
Eligibility for Investment Projects
Businesses engaged in expansion investments can now apply for VAT refunds if their accumulated input VAT reaches VND 300 million ($11,900) during the investment phase. They have one year from the project completion date to submit their claims, improving the process’s efficiency.
Refund Criteria for Goods Production and Services
For businesses focused exclusively on goods with a 5-percent VAT rate, a VAT refund may apply if the unclaimed input VAT accumulates to VND 300 million over 12 months.
Conclusion
The amendments to Vietnam’s VAT laws represent both a challenge and an opportunity for businesses operating within the country. By understanding the nuances of these changes, companies can optimize their tax strategies and ensure compliance with evolving regulations. Staying abreast of these revisions is essential for maximizing operational efficiency and mitigating potential risks associated with tax compliance.
This article aims to provide a comprehensive overview of the upcoming VAT changes in Vietnam, emphasizing the critical updates to compliance, rates, and refund processes that businesses should prioritize.