Updates on Tax Regulations in Vietnam for the Year 2024

This week, various tax adjustments have been implemented to align with the new year. Some changes aim to stimulate the economy, while others are intended to align Vietnam's tax policies with international tax regulations.

Foreign companies should take note of the following significant changes that have occurred this week.

The implementation of the top-up tax has commenced

Vietnam's National Assembly has passed a new tax law in response to the OECD's Global Minimum Tax (GMT) initiative that was introduced in November. Under this law, companies that are currently paying less than 15% tax will be required to pay a top-up tax, which will cover the difference starting from 1st January next year.

Vietnam has been offering foreign investors tax breaks for some time to encourage them to establish factories and plants across the country. This has helped Vietnam to become a crucial part of the global supply chain and a major global manufacturing hub.

According to the Resolution 107/2023/QH15, firms will have to comply with Vietnam's top-up tax requirements from 1st January 2024.

Extension of Tax Reduction for Environmental Protection

Since 2010, Vietnam has implemented the Environmental Protection Tax (EPT) as part of its efforts to shift towards a more environmentally friendly economy. In April 2023, the EPT on fuels and lubricants was reduced in order to boost economic activity in response to various challenges.

This reduction has been extended until the end of 2024 by Resolution 42/2023/UBTVQH15. It is expected that this reduction in the EPT will lead to a decrease in tax revenue of approximately VND 42,822 billion (US$1.76 billion).

As a result of this cut, the estimated tax revenue loss is around VND 42,822 billion (US$1.76 billion).

The VAT Tax decreased to 8%

Vietnam's Value Added Tax (VAT), which is usually charged at 10 percent, was reduced to 8 percent from July 1, 2023. This reduction was initially planned for the last half of 2023, but it has now been extended to June 30, 2024, as per Decree 94/2023/ND-CP.

The VAT cut will be applicable to most sectors except for telecommunications, information technology, finance, banking, securities, insurance, real estate, metals and metal products, mining, refined petroleum, chemicals, and items subject to excise tax.

In February 2022, the Vietnamese government had announced a similar policy to boost the pandemic-hit economy, reducing the VAT from 10 to 8 percent. The cut was in place until the end of December 2022 and cost Vietnam's state budget an estimated VND 49.4 trillion (US$2.2 billion) in revenue.

This latest iteration of the VAT reduction is expected to follow the same guiding principles as the previous VAT reductions.

The Cut on Car Registration Fees has ended

In an effort to boost the domestic car manufacturing industry, a reduction in vehicle registration fees was implemented in July 2023 through Decree 41/2023/ND-CP, resulting in a 50% decrease for cars, trailers, and semi-trailers assembled in Vietnam.

However, starting from January 1, 2024, the fee reduction has been revoked, and vehicle owners are now obligated to pay the full registration fee as specified in Decree 10/2022/ND-CP.

Conclusion

Based on the recent changes to taxes in Vietnam, foreign firms should be aware of the new top-up tax requirement, the extension of the Environmental Protection Tax cut, the reduction of VAT to 8 percent, and the end of the cut to vehicle registration fees. These changes reflect Vietnam's efforts to align with international tax regimes and stimulate the economy while addressing environmental concerns.