Effective from July 1 this year, the 2024 Law on Value-Added Tax (the Law) introduces comprehensive updates designed to improve tax administration policies and broaden tax bases.

Compared to the previous regulations on value-added tax (VAT), the Law introduces novel provisions that address important issues such as taxpayers, non-taxable objects, tax rates, input VAT credit, VAT refund, among others.

A key change in the Law is the broader definition of taxpayers to cover entities involved in e-commerce and digital platform-based business activities.

Accordingly, foreign suppliers without permanent establishments in Vietnam that sell goods or provide services to organizations and individuals in the country via e-commerce exchanges or digital platforms will have to pay VAT.

The Law also imposes VAT liability on institutional operators of foreign digital platforms that deduct and pay tax on behalf of foreign suppliers.

Additionally, liable to tax are operators of e-commerce exchanges, and operators of digital platforms with payment functions that credit tax, pay tax on behalf of, and declare the credited tax amounts for, households and individuals doing business on their exchanges or platforms.

Taxpayers also cover organizations doing business in Vietnam that apply the VAT credit method to calculate their payable tax amounts when purchasing services from foreign suppliers without permanent establishments in Vietnam via e-commerce channels or digital platforms and paying tax on behalf of these foreign suppliers.

Changes in non-taxable objects

The Law removes the provisions on VAT exemption and input VAT credit for enterprises and cooperatives that purchase unprocessed or preliminary processed products of crop production, livestock production, aquaculture and fishing for sale to others.

It assigns the Government to draw a list of VAT-exempt exported natural resources and minerals not yet processed or already processed into other products.

Meanwhile, the Law adds non-taxable items to include: (i) charges under loan agreements signed between the Vietnamese Government and foreign lenders; (ii) goods imported by financial leasing companies and transported directly to non-tariff zones for lease to enterprises in such zones; (iii) goods imported as supports or donations for remediation od consequences of disasters, epidemics or wars; and (iv) national relics, antiquities and national treasures imported by competent state agencies.

Adjustments in input VAT credit

The Law states that the input VAT amount arising in a month/quarter must be declared and credited when calculating the payable tax amount for that month/quarter. Any uncredited amount will be credited into the tax amount for the next month/quarter.

If a business establishment detects errors in the declared or credited input VAT amount, it may modify the declaration before a tax inspection/audit decision is announced.

Additionally, non-creditable input VAT amounts may be recorded as an expense for corporate income tax calculation or included in the historical cost of fixed assets in accordance with the law on corporate income tax.

To qualify for input VAT credit, businesses must provide non-cash payment evidence, except particular cases specified by the Government.

Exported goods and services will be entitled to input VAT credit if being accompanied by such documents as packing list, bill of lading, and insurance certificate. This will help prevent frauds in tax input and refund.

The Law outlines specific conditions for tax reimbursement, saying that VAT refund will be granted for a business establishment only engaged in producing goods or providing services subject to the 5% VAT rate if the uncredited input VAT amount reaches or surpasses VND 300 million after 12 consecutive months or four consecutive quarters.

VAT refund will not apply to goods that are imported into Vietnam and then re-exported to another country. Also, tax refund will not granted for investment projects of establishments engaged in conditional business lines if such establishments do not satisfy the conditions provided by the investment law or fail to maintain the law-specified conditions in its operation duration