With Vietnam set to implement major tax reforms in 2024, it’s crucial for businesses to understand the nuances of these updates to ensure compliance and maintain competitiveness. This article explores the intricacies of the Global Minimum Tax (GMT) among other significant changes, providing clear insights and advice for companies active in Vietnam.
An Overview of the Changes and Impacts within Vietnam’s Tax System for 2024
VAT Adjustments
The Changes:
- In 2024, there will be a continuation of the VAT rate reduction; it will be lowered from the current rate of 10% to 8%. The government has officially announced a VAT reduction for the first half of the year, meaning until June 30, 2024. However, draft proposals suggest extending the tax cut until the end of 2024. This reduction will follow the same approach as the one during the Covid epidemic of 2021-2022 and the year 2023, with some exceptions. The reduction does not cover several sectors, such as telecommunications, information technology, finance, banking, securities, insurance, real estate, metals and metal products, mining, and refined petroleum. Additionally, products subject to special consumption tax and information technology goods as defined under IT law will not benefit from this VAT reduction. For detailed information regarding these exceptions, refer to Appendices 1, 2, and 3.
- As specified in Article 9 of Decree No. 209/2013/ND-CP, most exported services are currently taxed at a 0% VAT rate, except for the cases outlined in Clause 3 of that Article. This exception clause defines Service Export as services directly provided to foreign organizations and individuals or consumed outside Vietnam, including services provided directly to organizations and individuals in non-tariff zones for consumption within those zones. However, it is crucial to be aware that changes in the VAT treatment for exported services could be on the horizon. A recent draft amendment to Article 9.1 by the Vietnam Federation of Commerce and Industry is proposing that VAT be applied to the majority of exported services, with the exception of international transportation and certain related services, signaling a potential shift from the current 0% VAT rate for most services if the draft is enacted.
The Impacts:
The ramifications of these changes will be significant. For example, in the IT sector, the method of identifying electronic devices will undergo a transformation. Currently, these products benefit from a tax decrease due to their classification as information technology goods under IT legislation. However, according to the Official dispatch 4020/TCHQ-TXNK issued on August 1, 2023, by the General Department of Customs, they will continue to receive a tax reduction.
Should the draft proposed by the Vietnam Federation of Commerce and Industry be approved, certain sectors will forfeit the 0% tax advantage. For example, the software and IT sectors will miss out on the 0% VAT benefit when making deals with overseas companies.
The VAT changes set for 2024 are expected to introduce several adjustments to the business environment, impacting various industries in distinct manners.
EPT Tax Rate Reduction
The Changes:
Significant changes to the EPT Fuel Tax Rate have been made, as detailed in Resolution 42/2023/UBTVQH15, effective until the end of December 2024. These adjustments have resulted in a 50% reduction in the environmental protection tax for gasoline, oil, and lubricants. Specifically, the tax on gasoline (ethanol excluded) has been decreased to 2,000 VND/liter from the previous 4,000 VND/liter. Likewise, the tax rates for aviation fuel, diesel oil, fuel oil, and lubricant oil have been halved from 3,000 to 1,000 VND/liter. The tax on grease has been lowered to 1,000 VND/kg from 2,000 VND/kg, and kerosene tax has been reduced to 600 VND/liter from 1,000 VND/liter.
The Impacts:
The effects of these adjustments are significant, especially for sectors that depend heavily on these fuels, including transportation, shipping, fishing, and gas services. Lowering the EPT Fuel Tax Rate strengthens these companies’ ability to bounce back and increase production, allowing them to enjoy major advantages from decreased environmental protection taxes on gasoline, oils, and greases.
Global Minimum Tax (GMT)
The Changes:
The activation of the Global Minimum Tax (GMT) in 2024 marks a pivotal transformation in the landscape of global taxation. This new policy, enacted under [Resolution 107](https://thuvienphapluat.vn/van-ban/Doanh-nghiep/Nghi-quyet-107-2023-QH15-ap-dung-thue-thu-nhap-bo-sung-chong-xoi-mon-co-so-thue-toan-cau-578567.aspx?anchor=dieu_8), specifically aims at Multinational Enterprise Groups (MNEs) with revenues exceeding EUR 750 million for 2 of the past 4 fiscal years.
A critical element of this legislation is the Qualified Domestic Minimum Top-Up Tax (QDMTT), mandating that MNEs operating within Vietnam pay an additional tax if their effective tax rate is below the 15% minimum threshold.
Furthermore, the Income Inclusion Rule (IIR) is another key component, requiring Vietnamese parent companies that own entities in low-tax jurisdictions abroad to report and pay a portion of the top-up tax, provided it hasn’t been accounted for in another jurisdiction under the GloBE Rules.
Submission deadlines vary for QDMTT and IIR declarations; QDMTT submissions are due 12 months post fiscal year-end, whereas IIR submissions are due between 15 to 18 months after the fiscal year concludes.
The Impacts:
Before, VAT and Corporate Income Tax were the main factors, but now, the GMT could have a direct effect. This is particularly true for large multinational firms, especially IT companies, which might not enjoy the benefits of corporate income tax exemption incentives in Vietnam anymore.
End of Car Registration Fee Cut:
The Changes:
Due to recent modifications, the previously applied reduction in car registration fees has been revoked. Vehicle owners must now cover the entire registration fee as detailed below:
- A fee of 2% is applicable for cars, trailers, or semi-trailers towed by cars, and other similar vehicles.
- Passenger vehicles with seating for up to 9 people (including pick-up vehicles) are subject to an initial registration fee of 10%. The People’s Council in each province or city may adjust this rate upwards based on local conditions, but any increase cannot exceed 50% of the set fee.
The Impacts:
These modifications will significantly affect the domestic manufacturing and assembly industry, particularly for companies within this sector. These firms may see a decrease in revenue due to the rise in vehicle ownership costs for prospective buyers, following the elimination of the car registration fee discount.
How Iris International Can Assist?
Navigating Vietnam’s complex tax landscape is now seamless with Iris International’s Tax Advisory service. As your dedicated advisor, we gear your business towards compliance within a multifaceted tax framework, ensuring you navigate the requirements with ease and take full advantage of available incentives.
Our team of experts at Iris International will refine your internal processes, establishing a streamlined structure for peak coordination and transparency. We provide complimentary consultations on tax regulations to demystify complexities and highlight your incentive qualifications. With Iris International, you secure a proactive ally, always prepared to accompany you in discussions with tax authorities to address issues head-on. Beyond handling your tax needs, we serve as your comprehensive service partner in Vietnam, assisting with company formation, recruitment, payroll, and beyond.
Let Iris International guide your business through Vietnam’s commercial landscape confidently. Reach out today for your free consultation!
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