Foreign sellers and intermediary digital platforms subject to new rules and rates 1st April 2025
The Vietnamese National Assembly has approved clarifications on non-resident VAT-registered business obligations, VAT rates, and improved deductibility for VAT credits.
The changes, to come into effect from 1 April 2025, to Vietnam’s Law on VAT looks to widen the VAT obligations for foreign suppliers engaged in e-commerce and digital platform-based activities with no permanent establishment (PE) in Vietnam.
Vietnam VAT on digital services was introduced in March 2022.
Taxpayer Classification and VAT Liability
The draft law clearly delineates taxpayer categories subject to VAT. This includes foreign suppliers without a PE in Vietnam providing e-commerce or digital platform-based services to Vietnamese consumers or entities (“Foreign Suppliers”). Other entities in scope are digital platform operators responsible for withholding and remitting VAT on behalf of Foreign Suppliers and business organizations in Vietnam utilizing the VAT credit method when procuring services from Foreign Suppliers. Additionally, e-commerce platform managers will be responsible for tax collection and remittance duties on behalf of small-scale business households and individual traders operating on their platforms.
VAT Rates and Tax Payment Documents
A substantial shift in VAT rates is proposed, transitioning from the current variable percentage-based rates applied to specific revenue types to a tiered structure where revenue will be subject to rates of either 10%, 5%, or exemption, depending on income type. For example, services currently subjected to a 5% VAT on revenue may now incur a 10% rate. This increase aims to streamline VAT rates and raise tax contributions from foreign digital and e-commerce activities within Vietnam’s tax jurisdiction.
Under the amended law, foreign suppliers’ tax payment documentation will qualify for input VAT deductibility, enhancing crediting opportunities for Vietnamese business customers. The specific documentation standards and compliance requirements will be detailed in an upcoming government decree, providing clarity for foreign suppliers and their Vietnamese counterparts on how to document tax remittances effectively.
VAT implications
Businesses producing VAT-exempt or non-taxable goods may experience higher indirect tax costs under the amended law, as they cannot offset increased input VAT incurred on transactions with Foreign Suppliers. Conversely, businesses dealing in VAT-taxable goods and services are likely to offset these costs by crediting the higher input VAT against their output VAT liabilities, minimizing net tax exposure.
