On 26 November 2024, Vietnam's National Assembly passed the new Value Added Tax Law, replacing the 2008 VAT Law. The new legislation takes effect from 1 July 2025.

Key highlights are summarized as following:

New non-cash payment requirements

The law removes the VND 20 million threshold for cash payments, requiring non-cash payment documentation for all purchases to qualify for VAT credit. The only exceptions will be specific cases as prescribed by the Government. This change aims to promote electronic payment adoption and enhance transaction transparency.

Revised VAT rates

• Agricultural machinery, offshore fishing vessels  and fertilizers will no longer be VAT-exempt, and now carry 5% VAT.
• Unprocessed forest products, sugar and its by-products, educational equipment, and the cultural sector, including sports activities and the film industry, which will see their VAT rate increase to 10% (previous 5%).
• New exemption for imported goods supporting disaster relief and epidemic prevention.

The law introduces new principles for applying VAT rates in specific business scenarios. These principles address two main situations: businesses that deal with multiple goods and services subject to different VAT rates, and agricultural products used as animal feed or medicinal ingredients. These additions have been implemented to ensure consistent application across all cases and eliminate potential misinterpretations of the tax regulations.

0% VAT eligibility regulations

The law clarifies the case where goods and services are directly supplied to organizations in duty-free zones, in order to be qualified for 0% VAT, besides being consumed within these zones, they must also be consumed directly for export production purposes.

The laws also specifically clarifies the case of digital content products, where they can qualify for 0% VAT when supplied to foreign parties, provided documentation proves overseas consumption.

Additional Documentation Requirements for Input VAT Credit on Exports

Businesses must now provide additional supporting documents including packing lists, bills of lading, and cargo insurance certificates (where applicable). These additional documentation requirements aim to prevent fraud in VAT credit claims and refund applications for exported items.

Enhanced VAT Refund Opportunities

The law introduces new provisions regarding VAT refunds for businesses that produce goods or provide services subject to the 5% VAT rate. These additional regulations have been established to better align with practical business operations and to eliminate implementation difficulties that businesses have encountered. The amendments aim to create a clearer framework for VAT refund procedures specifically for enterprises operating under the 5% VAT rate category.

VAT Refund Regulations for Investment Projects

The law provides clearer guidelines regarding VAT refunds for investment projects, especially investment projects in conditional business sectors:

• VAT Refund Timeline for Completed Investment Projects: the new laws specifically allow VAT refund application for completed investment projects by providing  guidance on the timeline of submitting VAT refund application. Businesses must file VAT refund applications within one year of project completion. This requirement applies to both fully completed projects and individual completed phases or components of larger projects. Completion date is also defined to avoid difficulties in implementation.
• For projects in conditional business sectors, businesses must maintain all required licenses to qualify for VAT refunds. However, projects in their investment phase may be exempt if current regulations do not require conditional business licenses at that stage. This exemption extends to projects legally exempt from obtaining such licenses.

Procedures for Correcting Input VAT Declaration Errors

The law revises procedures for businesses discovering errors or omissions in their input VAT declarations and credits, providing clearer guidance to avoid implementation difficulties. Taxpayers are allowed to amend VAT declaration before tax authorities or competent agencies announce a tax inspection or audit decision. The correction procedures are as follows:

• For errors increasing tax liability or reducing tax refunds: taxpayers must file correction in original period.
• For errors reducing tax liability or the amount of VAT credit carried forward to subsequent months or quarters: taxpayers should file corrections in period when error is discovered.

Recommendation

Businesses should prepare their systems for the new requirements regarding non-cash payment procedures as well as the changes in VAT rates before July 2025.