Update new tax regulations in Vietnam in 2024
1. What is tax?
According to Clause 1, Article 3 of the Law on Tax Administration 2019,tax is a compulsory amount payable to the state budget by organizations, households, household businesses, individuals as prescribed by tax laws.
Accordingly, taxes have the following characteristics:
- Tax is a payment in money: Tax is paid in the form of currency, not in kind or labor like the old forms of tax payment. Paying taxes in money makes the management and use of the state budget easier and more effective.
- Tax is a mandatory payment made through the path of power: Tax is imposed by the state and is mandatory for all taxable subjects according to the provisions of law. Failure to pay taxes or tax evasion will be handled according to the law.
- Tax is a determined revenue: Tax is calculated according to predetermined criteria such as taxable objects, tax base, tax rate, time of tax payment and tax collection agency. These criteria are clearly specified in tax legal documents.
- Tax is a non-refundable revenue: Tax is paid into the state budget, not a payment for a specific service or product. Taxpayers do not have the right to request the government to refund taxes or provide a specific service or product.
2. Update taxes that change in 2024
2.1. Value Added Tax (VAT)
2.1.1. Introduction to VAT
According to Article 2 of the Law on Value Added Tax 2008 (amended 2013, 2016), value added tax is a tax calculated on the added value of goods and services arising in the process from production, circulation to consumption.
Therefore, VAT has the following characteristics:
(i) First, VAT is an indirect tax
VAT is an indirect tax, in which the final consumer is responsible for paying this tax. Businesses and manufacturing establishments pay VAT to the state budget on behalf of the consumer by calculating the amount of tax into the selling price of goods and services, based on the difference between the final value of the product or service and the value of the goods or services consumed in the production process.
(ii) VAT is a multi-stage consumption tax
VAT is applied throughout the supply chain of goods and services, from the production stage, importation, distribution, to the final stage of selling to the ultimate consumer. However, the tax is only calculated on the value added at each stage and is not recalculated on the tax already calculated in previous stages. The total VAT collected from the circulation of goods and services is equivalent to the tax calculated on the selling price to the final consumer.
(iii) High economic neutrality
VAT does not strongly affect the production and consumption decisions of businesses and consumers. This comes from the ability to deduct VAT already paid when purchasing goods and services, helping to reduce the financial burden on businesses and consumers.
VAT is applied to goods and services used for the purposes of production, business, and domestic consumption, regardless of whether they are produced domestically or imported from abroad. In both cases, VAT will be calculated and collected into the state budget. This principle ensures fairness and uniformity in tax collection on economic activities and equal treatment of goods and services produced domestically and imported from abroad.
(iv) Value added tax is regressive
As VAT is imposed on goods and services, the final consumer must pay this tax regardless of their income level. If consumers purchase the same product at the same price, they will have to pay the same amount of VAT. Therefore, when comparing VAT with income, individuals with higher incomes will pay a lower proportion of this tax compared to individuals with lower incomes. For this reason, VAT is not considered a fair tax in society, as the ratio of value-added tax to the income of the poor is higher than that of the rich.
(v) There is no "layer" issue like other taxes
Value Added Tax (VAT) is calculated based on the value added at each stage, regardless of the number of transfers or production steps. When goods or services are sold or finally consumed, the end consumer is responsible for paying the final VAT to the government. With this calculation method, VAT helps avoid the issue of "layering" in tax calculation, reducing the burden of procedures and administrative work for businesses.
2.1.2 Taxable subjects, tax payers
According to the provisions of Article 4 of the Law on Value Added Tax (VAT) 2008, VAT taxpayers include organizations and individuals engaged in the production and business of goods and services (referred to as business establishments) and organizations and individuals importing goods (referred to as importers). This means that business establishments and importers are required to pay VAT.
However, in practice, VAT is considered an indirect tax, meaning that it is included in the selling price of goods and services and is paid by the consumer when using the product. Although the end consumer is ultimately impacted by VAT through paying a higher price for goods and services, the taxpayers of VAT are the business establishments and importers as stipulated by the law.
2.1.3. Changes in VAT applicable from 2024
On December 28, 2023, Vietnam Government issued Decree No. 94/2023/ND-CP, which stipulates the value-added tax reduction policy according to Resolution No. 110/2023/QH15 dated November 29, 2023, of the National Assembly.
Accordingly, continue to reduce VAT to 8% from January 1, 2024 to June 30, 2024 for groups of goods and services currently applying the tax rate of 10%, except for the following groups of goods and services:
- Telecommunications, financial activities, banking, securities, insurance, real estate business, metals and prefabricated metal products, mining products (excluding coal mining), coke, refined petroleum, chemical products.
- Goods and services subject to special consumption tax.
- Information technology according to the law on information technology.
The reduction of value-added tax for each type of goods and services above is applied uniformly at all stages of import, production, processing, and commercial business .
Regarding coal mining products sold (including cases where coal is mined and then screened and classified under a closed process before being sold), they are eligible for the value-added tax reduction. However, in stages other than the sales process of coal mining, the coal products listed in Appendix I issued with Decree 94/2023/ND-CP are not eligible for the reduction of value-added tax.
Corporations and economic groups that carry out a closed process to sell are also subject to value added tax reduction on sold coal products.
In the case of goods and services mentioned in Appendices I, II, and III issued with Decree 94/2023/ND-CP, which are either exempt from value-added tax or subject to a 5% value-added tax according to the provisions of the Law on Value Added Tax, they shall be implemented according to the provisions of the Law on Value Added Tax and shall not be eligible for the reduction of value-added tax.
2.2. Global Minimum Tax.
2.2.1. Introducing global minimum tax.
The Global Minimum Corporate Income Tax (referred to as the Global Minimum Tax) is one of the two main pillars of the Base erosion and profit shifting - BEPS (BEPS) initiated by the Organization for Economic Cooperation and Development (OECD) in June 2013. The global minimum tax rate is set at 15%, applicable to multinational companies with total global consolidated revenue of 750 million EUR (800 million USD) for at least two years of the four nearest consecutive years.
2.1.2 Taxable subjects, tax payers.
According to Article 2 Resolution No. 107/2023/QH15, the global minimum tax applies to Multinational enterprises (MNEs) that meet the consolidated revenue threshold of at least 750 million EUR based on the group's financial statements by country for at least 2 years in the 4 years immediately preceding the year under consideration, except for the following cases:
- Foreign government organizations, international organizations, non-profit organizations, pension funds or investment funds in which the ultimate holding company of a multinational corporation invests or any form of investment fund any investment from companies and organizations;
- Member companies or member companies in Vietnam within the same Group with average total revenue in Vietnam less than 10 million EUR; and have an average total income or loss in Vietnam of less than 1 million EUR.
- Income from international transportation (including freight transportation and passenger transportation) if meeting the exclusion conditions of multinational corporations.
2.2.3. Global minimum tax regulations.
(i) Qualified Domestic Minimum Top-up Tax (QDMTT) (According to Article 4 Resolution No. 107/2023/QH15):
According to the OECD model regulations, countries with effective corporate income tax rates lower than 15% are entitled to promulgate legal regulations to collect additional taxes under the QDMTT Regulations. The promulgation of these regulations must ensure "meeting standards'' according to OECD guidelines. Receiving countries have the right to prioritize collection of QDMTT tax before the investing country applies a minimum tax of 15%. Qualified domestic minimum additional tax (usually for the investment recipient country) is a minimum tax prescribed in a country's domestic law, according to which:
* QDMTT shall be determined in accordance with the following formula:
QDMTT = (Top-up Tax Percentage x Excess Profit) + Additional Current Top-up Tax (if any).
* Top-up Tax Percentage shall be determined in accordance with the following formula:
Top-up Tax Percentage = Minimum tax rate - Actual tax rate.
* Minimum Rate is 15%.
* Effective Tax Rate in Vietnam shall be calculated every fiscal year in accordance with the following formula:
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* Excess Profit shall be determined in accordance with the following formula:
Excess Profit = Net GloBE Income – (Tangible asset carve-out + Payroll carve-out)
* Net GloBE Income in Vietnam in the fiscal year is determined by the following formula:
Net GloBE Income in Vietnam = Global Minimum Tax Income of all constituents - Global Minimum Tax Loss of all constituents wall.
(ii) Income Inclusion Rule (IIR) (According to Article 5 Resolution No. 107/2023/QH15):
The provision allows the country in which the ultimate holding company is headquartered to levy ultimate holding tax on the income of subsidiaries in other countries that are effectively taxed below the 15% minimum tax rate. An ultimate holding company that holds, directly or indirectly, ownership of a foreign low-tax subsidiary under the Global Minimum Tax Regulations at any time during the financial year must declare and pay tax in accordance with provides for a minimum aggregate taxable income equal to the tax attributable to the additional tax under the Global Minimum Tax Regulations of foreign low-tax subsidiaries during the financial year, except in cases where this additional tax is paid in another country where the minimum taxable income aggregate standard is given priority in accordance with the Global Minimum Tax Regulations on tax priority order, according to which:
* Jurisdictional Top-up Tax shall be determined in accordance with the following formula:
Jurisdictional Top-up Tax = (Top-up Tax Percentage x Top-up Tax profit) + Adjusted Top-up Tax amount for the current year (if any) - Standard minimum domestic Top-up Tax amount (if any).
* Top-up Tax Percentage shall be determined in accordance with the following formula:
Top-up Tax Percentage = Minimum Rate – Effective Tax Rate
* Minimum Rate is 15%.
* Jurisdictional Effective Tax Rate shall be calculated every fiscal year in accordance with the following formula:
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2.3. Environmental protection tax
2.3.1. Introduction to environmental protection tax
The Environmental Protection Tax is regulated in Article 2, Clause 1 of the Law on Environmental Protection Tax 2010 as an indirect tax imposed on products and goods that have negative environmental impacts when they are used.
Accordingly, it can be understood that environmental protection tax is a state budget revenue aimed at regulating activities that affect the environment and controlling environmental pollution. The main purpose of the Environmental Protection Tax is to create an economic incentive to minimize the use of resources and energy that have a negative impact on the environment and encourage the use of environmentally friendly products and technologies.
2.3.2 Taxable subjects, tax payers
2.3.2.1. Taxable subject to environmental protection tax
Goods and products subject to environmental protection tax are goods that have a negative impact on the environment, as specifically stipulated in Article 13 of the Law on Environmental Protection Tax 2010, including 8 groups of goods:
(i) Gasoline, oil, lubricants (gasoline, excluding etanol; aviation fuel; diesel; fuel oil; mazut oil; lubricating oil; grease)
(ii) Coal (brown coal, anthracite coal, coking coal, other coal)
(iii) Hydro-chloro-fluoro-carbon (HCFC) solution.
(iv) Non-woven plastic bags are subject to tax.
(v) Restricted-use herbicides.
(vi) Restricted-use termite pesticides.
(vii) Restricted-use preservatives for forest products.
(viii) Restricted-use disinfectants for warehouses.
2.3.2.2. Environmental protection tax payers
Environmental protection tax is levied on goods subject to taxation, therefore Article 5 of the Environmental Protection Tax Law stipulates that Environmental protection tax payers, in general, are organizations, households, and individuals who produce or import goods subject to environmental protection tax.
In order to ensure the smooth implementation of the law and avoid any difficulties, the law also specifies certain special cases as follows:
- In the case of entrusted importation, the person receiving the entrusted importation of goods subject to environmental protection tax is the Environmental protection tax payers.
- In the case of organizations, households, or individuals acting as intermediaries in purchasing coal from small-scale or retail mining without presenting documents proving that the goods have already been subject to environmental protection tax, the organizations, households, or individuals acting as intermediaries in purchasing are the Environmental protection tax payers.
2.3.3. Changes in environmental protection tax apply from 2024
On December 28, 2023, the Standing Committee of the National Assembly passed Resolution 42/2023/UBTVQH15 on environmental protection tax rates on gasoline, oil, and lubricants.
Accordingly, the environmental protection tax rate on gasoline, oil, and lubricants from January 1, 2024 to December 31, 2024 is prescribed as follows:
- Gasoline (except etanol): 2,000 VND/liter.
- Aviation fuel: 1,000 VND/liter.
- Diesel; mazut oil; lubricants: 1,000 VND/liter.
- Grease: 1,000 VND/kg.
- Kerosene: 600 VND/liter.
Thus, the Standing Committee of the National Assembly decided to continue reducing the environmental protection tax rate on gasoline and oil from January 1, 2024 to December 31, 2024.
From January 1, 2025, the environmental protection tax on gasoline, oil, and lubricants will continue to comply with the provisions in Section I, Clause 1, Article 1 of Resolution 579/2018/UBTVQH14, specifically:
- Gasoline (except etanol): 4,000 VND/liter;
- Aviation fuel: 3,000 VND/liter;
- Diesel; mazut oil; lubricants: 2,000 VND/liter;
- Grease: 2,000 VND/kg;
- Kerosene: 1,000 VND/liter.
Resolution 42/2023/UBTVQH15 takes effect from January 1, 2024.
Above are Dai Ha Thanh Law Company Limited's latest updates on regulations related to taxes in Vietnam in 2024. Dai Ha Thanh Law Company Limited, with a team of professionally trained domestic and foreign lawyers and legal advisors, is committed to providing professional legal services to our customers. If you need detailed advice, please contact us to receive professional and effective legal consulting services.
