Key changes in the amended VAT Law in Vietnam

On 26 November 2024, following the program of the 8th session of the 15th National Assembly, the amended Value Added Tax Law was officially passed, including significant changes which will take effect on 1 July 2025. The provision regarding the revenue threshold for households and individual business entities not subject to tax will take effect from 1 January 2026.

In this article, we will outline the notable changes in the amended VAT law based on the adopted draft law to help foreign investors prepare for compliance and strategic planning.

Key takeaways:

• Certain goods and services, such as fertilizers, specialized agricultural machinery, and offshore fishing vessels, will no longer be non-taxable and be subject to 5% VAT.
• Tax rate for some goods and services (e.g., cultural, exhibition, sports, and film production activities, sugar and by-products in sugar production) will increase from 5% to 10%.
• All purchased goods and services must have non-cash payment documents for VAT deduction, with some exceptions.
• VAT refunds are contingent on the seller’s status on VAT declaration and payment.
• The revenue threshold for VAT exemption will increase from 100 million VND to 200 million VND per year, benefiting small businesses.

Removal of selected goods and services from non-taxable subjects

Accordingly, certain goods and services listed below that currently belong to the list of non-taxable subjects* will be subject to VAT when the law takes effect.

• Fertilizers, specialized machinery and equipment for agricultural production, and offshore fishing vessels
• Securities depository, market organization services of stock exchanges or trading centers
• Public postal services, public telecommunications services, and universal internet services under government programs
• Maintenance services for zoos, gardens, parks and street trees; and public lighting services.

Adjustments to tax rates for certain goods and services

Expanding additional activities with 0% applicable VAT rate

The amended law has introduced additional activities entitled to a 0% VAT rate*, including:

• International transportation
• Construction and installation works abroad, in duty-free zones
• Goods sold in quarantine areas to individuals (foreigners or Vietnamese) who have completed exit procedures, and goods sold at duty-free shops
• Export services provided to foreign organisations and individuals, including services for leasing means of transport used outside the territory of Vietnam, and services of the aviation and maritime industries provided directly for international transportation or through agents

*Non-taxable subjects and 0% taxable subjects are two separate concepts in Vietnam. While non-taxable subjects are not subject to VAT, meaning individuals and organisations are not required to declare VAT and cannot deduct or refund input VAT for these non-taxable subjects; 0% taxable subjects are subject to VAT but at a 0% rate, meaning entities must still declare taxes and are entitled to deduct and refund input VAT for these 0% taxable subjects.

Changes in conditions for input VAT deduction

Under current regulations, goods and services purchased with a value of less than 20 million VND at a time do not require non-cash payment documents for VAT deduction. However, according to the new law, all purchased goods and services must have non-cash payment documents, except for some special cases as prescribed by the government.

Additional conditions for VAT refunds

The new law introduces additional conditions for VAT refunds, specifying that buyers are only entitled to a refund if the seller has declared and paid VAT according to the regulations for the invoices issued to the business establishment requesting the refund.

Furthermore, the law includes additional regulations on cases eligible for tax refunds. A business establishment engaged in the production of goods or the provision of services subject to a 5% VAT rate is entitled to a VAT refund if it has unrecovered input VAT of three hundred million VND or more after 12 months or four quarters.

Increase to revenue threshold for VAT exemption from 100 to 200 million VND/year

Under the current regulations, the revenue threshold for VAT exemption is 100 million VND per year. The new law raises this threshold to 200 million VND per year. Consequently, goods and services provided by households and individuals with annual revenue of 200 million VND or less will not be subject to VAT.

Although this change may reduce state budget revenue, it is expected to support small businesses by reducing tax pressure and promoting production and business activities.

Additional criteria to determine the time for calculating VAT for goods

In particular, the amended law added the time of invoicing as an additional point for calculating VAT for goods. Currently, VAT is determined only at the time of transfer of ownership or the right to use the goods to the buyer, regardless of whether the payment has been collected.

Others notable points

The new law removes the regulation that exempts unprocessed or semi-processed agricultural products in the commercial stage from output VAT while still allowing for input VAT deduction. This change ensures adherence to the VAT principle that input VAT can only be deducted when the output is subject to VAT.

In addition, it also formally allows businesses to declare and deduct overlooked VAT amounts discovered before a tax inspection by the authorities.

The draft law was adopted on November 26, 2024. According to regulations, the President will promulgate the law within 15 days of its passage. Therefore, the full law is expected to be formally issued soon.