Highlighting recent tax and customs developments in Vietnam
New Value-Added Tax (“VAT”) Legislation and Ongoing 2% VAT Reduction Policy for 2025 – Implications for Foreign Investment
To continue attracting and nurturing foreign investment, the National Assembly of Vietnam officially enacted the Law on Value-Added Tax 2024 (“New VAT Law“) on 26 November 2024. This law will come into effect on 1 July 2025, introducing several significant modifications that will impact foreign investment in sectors like information technology (IT), software development, and export processing, where Vietnam has been seen as an appealing investment destination due to its attractive tax incentives.
Non-VAT Categories
Software products and services are now classified as non-VAT items. Consequently, foreign-invested enterprises involved in software development and services will no longer be able to claim VAT credits or refunds for domestic sales. This means that VAT input will be included in the cost of goods sold, potentially raising the selling prices of their products and services. Additionally, imported goods leased by financial leasing firms to businesses in non-tariff zones are now categorised as non-VAT products.
VAT Rates
The New VAT Law clarifies regulations regarding the 0% VAT rate for goods and services related to exports. These include international transport, rental services for transportation means used outside of Vietnam, and services in the aviation and maritime sectors, whether provided directly or through agents for international transport.
VAT-able Price
The revised VAT-able price for imported goods will now encompass the assessed customs value, import duties, any additional import taxes (if applicable), special consumption tax (if applicable), and environmental protection tax (if applicable).
VAT Refunds
The New VAT Law introduces clearer guidelines for VAT refunds, offering benefits to enterprises and investors.
Enterprises that exclusively produce goods and provide services subject to a 5% VAT rate can apply for a VAT refund if they have an input VAT amount of 300 million VND or more that has not been fully deducted after 12 months or four quarters.
Investment projects that meet particular legal criteria may also qualify for VAT refunds. However, refunds will be denied for projects where (i) the business does not contribute enough registered charter capital, or (ii) the project operates in conditional business sectors but fails to comply with legal requirements.
Additional Updates
The New VAT Law also brings significant updates concerning tax calculation methods, deductions, and invoicing requirements. With its implementation set for 1 July 2025, it is essential for both domestic and foreign-invested enterprises to thoroughly review these changes and adapt proactively to ensure compliance and mitigate potential issues.
Ongoing 2% VAT Reduction for 2025
On 3 December 2024, the Ministry of Finance issued ruling No. 13145/BTC-CST, which details a draft decree for a 2% reduction in the VAT rate. This follows the 15th National Assembly’s resolution approved during its 8th session, which allows the continuation of the VAT reduction as part of the economic recovery and development strategy.
Effective from 1 January 2025 until 30 June 2025, the VAT rate on goods and services currently taxed at 10% will be reduced to 8%. However, this reduction will not apply to categories such as telecommunications, information technology, financial services, banking, securities, insurance, real estate, metals, prefabricated metal products, mining (excluding coal), coke, refined petroleum, chemical products, and goods and services subject to special consumption tax.
While this tax cut may decrease Government revenues in the short term, it is anticipated to positively influence the economy by stimulating consumption and business activities, ultimately supporting future tax revenue and the Government’s fiscal objectives.
Guidance on Corporate Income Tax (“CIT”) Incentives for New Investment Projects
On 4 December 2024, a local tax authority issued ruling No. 10169/CTQNA-TTHT (“ruling 10169“) outlining the CIT incentives available for new investment projects in industrial zones. Recently, tax incentives for such projects have gained significant attention in investment forums, especially among foreign investors interested in opportunities in Vietnam. This interest comes amid increased scrutiny from tax authorities, who have been rigorously challenging the application of tax incentives by foreign investment enterprises, resulting in substantial tax recoveries and severe penalties for incorrect tax filings. Below are some key points regarding the application of tax incentives for new investment projects in industrial zones, as per ruling 10169:
- To qualify as new investment projects in industrial zones, these projects must receive a specific investment licence or investment certificate from the relevant licensing authorities.
- Income generated from new investment projects in industrial zones is eligible for tax incentives, including two years of tax exemption and four years of a 50% reduction in the applicable tax rate. The incentive period starts from the first year when the project generates taxable income or from the fourth year if no taxable income is produced within the first three years.
- Foreign investment enterprises are responsible for determining the applicable tax incentives for their projects based on the specific conditions of their investments when filing taxes with the authorities.
Tax Documents for Credit VAT and Tax Deduction for Expenses Paid by Individual Employees
According to ruling No. 2928/CTVPH-TTHT issued on 5 December 2024 by a local tax authority, the tax documents required to claim credit VAT and tax deductions for expenses incurred by individual employees on behalf of enterprises must include non-cash payment vouchers. These vouchers are recognised by tax authorities in accordance with VAT regulations. Specifically, non-cash payment vouchers are defined as follows:
- For expenses related to the purchase of goods, services, materials, assets, meals, or client-related costs paid by individual employees, there must be documentation from the enterprise authorising the employees to make such payments, as well as references to these payments in contracts or agreements with sellers or suppliers.
- For expenses incurred by individual employees during business trips, the payments must be supported by (i) the enterprise’s decision to assign the employees to the respective business trips, and (ii) the enterprise’s policy permitting employees to make business-related payments using their personal bank accounts or credit cards.
If you have any queries on the above, please feel free to contact Nguyen Hung Du, Partner, Tax at du.nguyen@rajahtannlct.com or any of our team members set out on this page.
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