As Vietnam undergoes significant tax reforms in 2024, businesses must grasp the intricate details of these changes to stay compliant and competitive. This article delves into the complexities of the Global Minimum Tax (GMT) and other pivotal alterations, offering clarity and guidance for businesses operating in Vietnam.
Overview of Vietnam’s Current Tax System: The Changes & Impact in 2024
VAT Adjustments
The Changes:
- In 2024, VAT rates will continue to be reduced; from the current 10% rate, it will drop to 8%. The government officially decided to reduce VAT tax for the first 6 months of the year, i.e. until June 30, 2024. However, in the draft, will continue the tax reduction until the end of 2024. This reduction will be applied in the same way as it did during the 2021-2022 Covid epidemic and the year 2023 past, with notable exceptions.
The change does not apply to several sectors, including, but not limited to telecommunications, information technology, finance, banking, securities, insurance, real estate, metals and metal products, mining, and refined petroleum. Also, products that are subject to special consumption tax and information technology goods under IT law will not enjoy this VAT decrease. Detailed information on these exceptions can be found in Appendix 1, 2 and 3. - According to Article 9 of Decree No. 209/2013/ND-CP, currently, these exported services are subject to a 0% VAT, with exceptions only in cases guided by Clause 3 of the same Article. In this clause, Service Export is defined as the direct provision of services to organizations and individuals overseas as well as consumption outside of Vietnam. Exported services also encompass direct provision to organizations and individuals in non-tariff zones and consumption within these zones.
However, it’s important to note that there may be potential changes in the VAT treatment of exported services. The latest draft of Article 9.1 proposed by the Vietnam Federation of Commerce and Industry suggests the imposition of VAT on most exported services, excluding international transport and various related services. This means that most exported services if the draft is approved, will not enjoy the current 0% tax rate.
The Impacts:
The impact of these adjustments will be considerable. For instance, in the IT industry, there will be a shift in how electronic devices are identified. These items, which are usually subject to a tax reduction owing to their categorization as information technology products according to IT law, will, following Official dispatch 4020/TCHQ-TXNK dated August 1, 2023, from the General Department of Customs, also be subject to a tax reduction.
If the Vietnam Federation of Commerce and Industry’s proposed draft is accepted, some industries will lose the 0% tax incentive. For instance, industries tied to software and IT will no longer benefit from the 0% VAT incentive when entering into agreements with foreign companies.
This VAT adjustment in 2024 promises to bring some changes to the business landscape, affecting a variety of sectors in different ways.
EPT Tax Rate Reduction
The Changes:
The EPT Fuel Tax Rate has recently undergone significant changes as outlined in Resolution 42/2023/UBTVQH15, applicable until December 31st, 2024. These changes represent a 50% reduction in environmental protection tax on gasoline, oil, and lubricants. Notably, the tax on gasoline, excluding ethanol, has been lowered from 4,000 to 2,000 VND/liter. Similarly, taxes on aviation fuel, diesel oil, fuel oil, and lubricant oil have been cut down from 3,000 to 1,000 VND/liter. Grease saw a decrease from 2,000 to 1,000 VND/kg, while kerosene was reduced from 1,000 to 600 VND/liter.
The Impacts:
The implications of these changes are profound, particularly for industries that heavily rely on these fuels such as transportation, shipping, fishing, and gas services. The reduction in the EPT Fuel Tax Rate bolsters the capacity of these businesses to recover and expand production, enabling them to reap significant benefits from reduced environmental protection taxes on gasoline, oils, and greases.
Global Minimum Tax (GMT)
The Changes:
The implementation of the Global Minimum Tax (GMT) in 2024 stands as a significant shift in global taxation laws. This new legislation, following Resolution 107, is primarily targeted towards Multinational Enterprise Groups (MNEs) boasting revenues of at least EUR 750 million over a time span of 2 out of the preceding 4 fiscal years.
One of the key features of this law is the Qualified Domestic Minimum Top-Up Tax (QDMTT) which enforces an obligation on MNE conglomerates operating in Vietnam to pay a top-up tax if their effective tax rate falls below the minimum tax rate of 15%.
Another integral regulation under this law is the Income Inclusion Rule (IIR). Entities subject to the IIR, which includes Vietnamese parent entities holding ownership in constituents with low tax rates abroad, are now obligated to declare and pay a portion of the top-up tax. This is unless the tax has already been prioritized for payment in another jurisdiction under the GloBE Rules.
The deadlines for submitting this declaration differ between QDMTT and the IIR, with QDMTT due 12 months after the fiscal year-end and the IIR falling between 15 to 18 months after the fiscal year closes.
The Impacts:
Previously, VAT and Corporate Income Tax were the primary influences, but now, the GMT may have a direct impact. This especially rings true for large multinational corporations, most notably IT companies who may no longer benefit from corporate income tax exemption incentives in Vietnam
End of Car Registration Fee Cut:
The Changes:
As a result of recent changes, the car registration fee reduction that had previously been in effect has been discontinued. Vehicle owners are now required to pay the full registration fee as outlined below:
- For cars, trailers, or semi-trailers pulled by cars, along with other vehicles similar to cars, the fee stands at 2%.
- Passenger cars that seat 9 individuals or less (including pick-up cars) will be charged the initial registration fee at a rate of 10%. Depending on specific local conditions, the People’s Council of a given province or centrally run city may choose to adjust and increase this rate, however, this increment will be capped at 50% of the prescribed levy.
The Impacts:
These changes will have considerable impacts on the domestic manufacturing and assembly industry, especially enterprises that are part of this business sector. These businesses are likely to experience a reduction in revenue as the costs of vehicle ownership have effectively increased for potential buyers with the removal of the car registration fee cut.
How VNBG Can Assist?
Navigating the intricate tax environment in Vietnam has never been easier with VNBG’s Tax Advisory service. As your trusted advisor, we prepare your business for compliance in a complex tax ecosystem, guiding you confidently through requirements and helping you reap the benefits of incentives.
VNBG’s expert team will optimize your internal workflow, creating an efficient structure for utmost coordination and transparency. We offer free consultations on tax regulations, aiming to simplify complexities and clarify your eligibility for incentives. With VNBG, you gain a hands-on partner, always ready to join you in meetings with tax authorities for proactive issue resolution. Beyond tax services, we are your one-stop service solution in Vietnam, offering support for company incorporation, recruitment, payroll, and more.
Let VNBG help you navigate the business terrain in Vietnam with confidence. Contact us today for your free consultation!
