Viet Nam Implements Significant Tax Reforms Commencing July 1, Aiming for a More Equitable Tax Structure
Vietnam's New Tax Rules: A Game-Changer
Written by: Mai HuoNG (in an informal, friendly tone)
Get ready for a significant overhaul of Vietnam's tax system! From July 1, numerous amended tax laws will be enforced, reshaping the country's tax landscape in both structure and administration.
These changes include the revised Law on Value-Added Tax (VAT), Law on Corporate Income Tax, Law on Personal Income Tax, and Law on Special Consumption Tax, all aimed at improving fairness, efficiency, and transparency in taxation.
The Changing VAT Landscape
Under the new VAT rules, major adjustments are in store. One key change involves the mandatory use of non-cash payments for VAT input deduction, even for purchases under VND20 million (approximately $770). Previously, only payments exceeding that limit required bank transfers. Now, businesses must present non-cash payment proof for all purchases to claim VAT credit.
This measure is intended to prevent fake invoices and bolster tax integrity. Although it may pose initial challenges for small vendors and traditional market sellers, the use of non-cash payments will help them establish a clear financial history, making it easier to secure official credit.
The revised VAT Law also raises the taxable income threshold for household and individual businesses. From 2026, only those earning over VND200 million per year will be subject to VAT and personal income tax, offering micro-businesses substantial tax burden and paperwork relief, allowing them to reinvest and grow.
Revisions have been made to the list of non-taxable goods and services, adjustments to taxable prices for imported goods, and revised tax rates for various product groups. These updates reflect the real economic value and encourage the right consumption behavior.
Under the new rules, the VAT system will see major changes. - VNS Photo Mai
VAT exemptions apply to several items, including fertilizers, agricultural machinery, offshore fishing vessels, securities custody, and stock market operation services. Exports made from processed natural resources or minerals are only VAT-exempt if listed by the Government.
The revised law also introduces VAT exemption for imported goods donated for disaster relief, epidemic control, or war-related support. The formula for calculating VAT on imported goods has been revised as well.
E-commerce and the New Tax Regime
E-commerce is a significant area of focus under the new tax laws. A 'tax withholding at source' mechanism will be applied to e-commerce platforms like Shopee, Lazada, and Tiki. Starting July 1, these platforms must withhold taxes before transferring payments to sellers.
The tax rate varies based on the transaction type and seller residency, with 1.5% or 2% withholding tax potentially applicable to sales of goods. If a platform cannot determine whether a sale is a good or a service, the highest rate will apply. Monthly tax filing is required, and cancelled or refunded orders must be adjusted.
This approach ensures effective and timely tax collection and creates a level playing field between online and offline sellers, as traditional shops have long been subject to tax rules.
Personal Tax Management Redefined
A significant shift in personal tax management is also happening. From July 1, personal tax codes will be replaced by 12-digit personal ID numbers, found on every citizen's national ID card. This change will facilitate linking tax records with population data, social insurance, land use, and banking information, allowing authorities to detect tax risks and trace fraud more effectively.
VAT is applied at 1 per cent for goods, 5 per cent for services and 3 per cent for transportation or services tied to goods. - VNA/VNS Photo
Contrary to some concerns, not every transfer into a personal bank account will be taxed. Exempted income includes gifts between close relatives, inheritance, one-time property sales, income from savings or insurance, and compensation payments. Transfers related to agriculture or fishing are typically tax-free as well.
Taxpayers are encouraged to maintain records of their transactions, especially when large amounts are involved, as documentation can help clarify the nature of a transfer if questioning arises later. Officials clarified that they do not monitor all bank transfers, focusing checks only on instances of potential tax evasion, particularly when people receive large sums but do not issue invoices or report income.
The case of social media influencer "Cún Bông" (real name Vũ Nam Phương) serves as a reminder to all influencers and online sellers to comply with the law, with her reporting VND5 billion in income from 2023 to the present, a substantially higher actual revenue of over VND120 billion under investigation for serious accounting violations and tax evasion.
- Despite initial challenges with the new VAT rules, non-cash payments will help small vendors establish a clear financial history, leading to easier access to official credit.
- The revised VAT Law also increases the taxable income threshold for household and individual businesses, giving micro-businesses a break from tax burden and paperwork, allowing them to reinvest and grow.
- Under the new VAT rules, the e-commerce sector will be subject to a 'tax withholding at source' mechanism, with platforms like Shopee, Lazada, and Tiki required to withhold taxes before transferring payments to sellers.
- Personal tax management is being redefined, with personal tax codes replaced by 12-digit personal ID numbers found on every citizen's national ID card, aiming to facilitate better linking of tax records with population data for fraud detection.
- Not every transfer into a personal bank account will be taxed, with certain exemptions such as gifts between close relatives, inheritance, one-time property sales, income from savings or insurance, compensation payments, and transfers related to agriculture or fishing remaining tax-free.
