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November 4, 2024
2024-2017

Vietnam proposes VAT increase on foreign suppliers' e-commerce and digital platform revenue

  • A draft amended Law on Value Added Tax (VAT) further clarifies (1) which taxpayers are liable for VAT arising from e-commerce or digital platform-based business carried out by foreign suppliers without a permanent establishment in Vietnam and (2) the VAT increments imposed on revenue of these foreign suppliers.
  • Under the amended law, tax payment documents by the foreign suppliers may be considered valid for input VAT deductibility.
  • The draft VAT Law is expected to be promulgated in late 2024 and effective from 1 July2025.
 

In October 2024, the Vietnamese Government submitted to the National Assembly for appraisal a draft amended law (draft Law) on value-added tax (VAT). Among other things, the draft Law proposes significant changes to VAT applicable to the revenue of these foreign suppliers. Since 1 July 2020, Vietnam has implemented taxation, including VAT and corporate income tax (CIT), on revenue of foreign suppliers conducting e-commerce or digital platform-based business without a permanent establishment in Vietnam.

Taxpayers

The draft VAT Law further clarifies which taxpayers from e-commerce and digital platform-based businesses are included the following categories:

  • Foreign suppliers without a permanent establishment in Vietnam that conduct e-commerce or digital platform-based business with organizations and individuals in Vietnam (hereinafter referred to as "Foreign Suppliers")
  • Organizations that manage foreign digital platforms and are responsible for deducting and paying tax on behalf of Foreign Suppliers
  • Business organizations in Vietnam that apply the VAT credit method and purchase services from Foreign Suppliers, and thereby deduct and pay tax on behalf of Foreign Suppliers
  • Organizations that manage e-commerce trading platforms performing the functions of payment, declaration, and payment of tax on behalf of business households and individuals doing business on the platform

Tax implications     

Foreign Suppliers conduding e-commerce or digital platform-based business currently declare and pay VAT liability on the percentage (%) applicable to their revenue. The percentage varies depending on type of income (e.g., 5%, 3%, 2% or exempt). Under the draft law, it is inferred that the relevant VAT rate of 10%, or 5% or exempt shall be applied on their respective revenue instead. For instance, services that typically apply a percentage of 5% on revenue would be subject to VAT rate of 10% on revenue.

In addition, the draft Law indicates that tax payment documents from Foreign Suppliers would be considered valid for purposes of their business customers' claiming input VAT. The Government will provide specific requirements for tax payment documents in a guiding Decree.

No proposals for changes to the determination of CIT obligation are included in the latest draft amended Law on CIT. Foreign Suppliers currently pay CIT based on the percentage applicable to revenue of 5% on their total taxable revenue in Vietnam.

With the above imminent changes, businesses that are producing VAT-taxable goods and services might not be impacted because the increased input VAT charged by Foreign Suppliers will be creditable against their output VAT. Meanwhile, individual customers or businesses that are producing non-VAT taxable goods and services could bear higher indirect tax costs.

Effective Date

The amended Law is expected to be passed by the National Assembly in late November 2024 and to become effective from 1 July 2025.

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Contact Information

For additional information concerning this Alert, please contact:

EY Consulting Vietnam JSC

Ernst & Young LLP (United States), Vietnam Tax Desk, New York

Ernst & Young LLP (United States), ASEAN Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
 

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