There are a number of taxes that foreign business owners in Vietnam should be aware of. One of these taxes is Vietnam’s value-added tax which is particularly important for foreign retail businesses. With this in mind, this article runs through what this tax is, what it applies to, and the key elements that apply to foreign business persons.
What is the Value Added Tax in Vietnam?
Vietnam’s Value Added Tax or VAT is an indirect tax applied to most goods at the point of purchase in Vietnam. It is outlined in the Law on Value Added Tax which was first passed in 2008 but has been subsequently amended several times. This information is pulled from the aforementioned law and Circular 219 that was issued at the end of 2013.
What is the VAT rate in Vietnam?
Vietnam’s VAT applies to almost all goods and services bought or sold in Vietnam. It is currently set at 10 percent, however, there are some exceptions.
Firstly, the VAT is currently, but only temporarily, 8 percent. Reducing the VAT was an initiative taken to stimulate the economy during the COVID-19 pandemic, however, it has been extended repeatedly. As of writing, it was due to end on June 30, 2024, however, there is legislation currently before Vietnam’s National Assembly that would see the reduction extended to the end of the year if approved.
Items subject to a 5 percent VAT
Also, there are some items that only attract a 5 percent VAT. These include:
- Tap water;
- Most fertilisers and pesticides;
- Animal feed;
- Dredging operations for agriculture;
- Preprocessing and preservation of agricultural products;
- Most unprocessed aquaculture products;
- Unprocessed farming products including unhusked rice, husked rice, corn, potatoes, cassava, and wheat;
- Latex and resin for fishing nets,
- Raw foods that have not been cooked or processed;
- Unprocessed forestry products such as rattan, bamboo, mushrooms, roots, leaves, flowers, herbs, resin, and other forestry products;
- Sugar and sugar by-products like molasses or bagasse.
- Products made of jute, rattan, bamboo, leaves, straws, coconut shells, hyacinth, and other handicrafts made of recycled materials from agriculture;
- Preprocessed cotton;
- Newspaper printing paper;
- Most agricultural machinery and equipment;
- Most medical equipment certified by the Ministry of Health.
- Mot medicinal products;
- Teaching aids like models, pictures, boards, and chalk;
- Artistic activities, like exhibitions, sports, art performances, cinematography, the importation and distribution of films;
- Children’s toys and some books;
- Scientific research and equipment used for scientific research; and
- Social housing.
Note that this has been simplified. The Law on Value Added Tax goes into much greater detail on each item.
VAT exemptions
Broadly speaking the VAT applies to goods consumed within Vietnam–so goods that are imported solely to be made into something else and then reexported are generally not taxed under the VAT. That said the VAT law has a lot of smaller nuances
Low value imports
Imports valued at under VND 1 million or about US$40 are currently tax exempt per a Decision issued back in 2010 and that came into force in 2011. Over the decade since this was introduced, however, Vietnam’s e-commerce industry has grown rapidly and by some estimates US$1 billion worth of goods bought through e-commerce platforms now enter Vietnam everyday. In this light, the Ministry of Industry and Trade has moved to end this exemption, however, as of writing this was just an idea with no timeline in place.
What’s next?
Firstly, Vietnam’s Value-added Tax is just one of several taxes in Vietnam foreign firms should be aware of. Other important taxes in Vietnam include Corporate Income Tax, Capital Gains Tax, Special Consumption Tax, Foreign Contractor Tax in Vietnam, and Personal Income Tax. By familiarising themselves with these taxes it may foreign firms to avoid running afoul of Vietnam’s tax department.
The VAT is a key pillar of Vietnam’s tax system alongside corporate income tax, personal income tax, and the special consumption tax. This is a crucial tax that foreign firms should be aware of and make sure that they understand.
It’s also worth noting that the temporary reduction of the VAT to 8 percent has been extended several times and it looks as though it may be extended again. In this light, firms that may be impacted by an extension can best keep abreast of development related to Vietnam’s Value Added Tax by subscribing to the-shiv.
Last updated June 5 2024: Added section on low value imports.