Vietnam, a rising star in the global economy, has recently implemented several significant changes to its tax policies, aiming to both stimulate economic growth and align with international tax standards. These modifications are crucial for foreign firms operating in the country to understand and adapt to. Let’s delve into the key alterations that have come into effect this year.

Top-up Tax Introduction

In response to the OECD Global Minimum Tax initiative, Vietnam’s National Assembly approved the implementation of a top-up tax. This regulation mandates that companies with consolidated financial statement revenues exceeding 750 million euros and paying less than a 15 percent tax rate must compensate for the difference beginning January 1, 2024. Historically, Vietnam has provided foreign investors with generous tax incentives to bolster its position as a global manufacturing hub. However, this new regulation signifies a shift towards more stringent tax compliance in line with international standards.

Extension of Environmental Protection Tax (EPT) Cut

Since 2010, Vietnam has been committed to fostering a cleaner, greener economy through the Environmental Protection Tax (EPT). In a bid to stimulate economic activity, the EPT on fuels and lubricants was initially reduced in April 2023 and has now been extended until the end of 2024. This extension, outlined in Resolution 42/2023/UBTVQH15, is estimated to decrease tax expenditures for companies and individuals by approximately VND 42,822 billion (US$1.76 billion).

Reduction in Value-Added Tax (VAT)

To further boost economic recovery, Vietnam has extended the reduction of its VAT rate from 10 percent to 8 percent until June 30, 2024. This reduction, initiated in July 2023, applies to most sectors, excluding specific industries such as telecommunications, finance, and real estate. Similar VAT reductions have been implemented previously to mitigate the impacts of economic downturns, highlighting the government’s commitment to supporting businesses during challenging times.

Conclusion of Car Registration Fee Cut

In a move to stimulate the local car manufacturing industry, Vietnam introduced a reduction in vehicle registration fees in July 2023. However, as of January 1, 2024, this fee reduction has been terminated, reverting vehicle owners to pay the full registration fee. This decision indicates the government's focus on balancing economic incentives with fiscal responsibility.

Future Business Outlook

Looking ahead, Vietnam is set to introduce the new Law No. 29/2023/QH15 on Real Estate Business, scheduled to take effect on January 1, 2025. This law aims to enhance transparency and clarity within the real estate industry, further solidifying Vietnam’s position as an attractive destination for foreign investment.

Implications for Foreign Firms

In conclusion, Vietnam’s tax landscape is undergoing significant transformations in 2024, driven by both domestic economic stimulus efforts and alignment with international tax standards. Foreign firms must remain vigilant and proactive in navigating these changes to ensure continued success and growth in the dynamic Vietnamese market. For foreign firms in Vietnam, staying abreast of recent tax changes is essential. Compliance with top-up tax regulations and understanding VAT adjustments are critical for financial stability. 

Consulting with PHC Advisory provides tailored strategies and expert guidance to navigate these complexities effectively. If your company lacks expertise, PHC Advisory can assume control and offer outsourcing services for Accounting, Tax, and Finance, addressing your challenges. Our personalized approach enables firms to seize opportunities and mitigate risks, making us a valuable partner in navigating Vietnam's dynamic tax environment.

At PHC Advisory, we can offer you full support on matters regarding doing business in Asia, or any other issues your business may face. If you would like to know more about policies relevant to your business in Asia, please contact us at info@phcadvisory.com.

PHC Advisory is a company of DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance.

The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way.

If you want to know more about Vietnam, please have a look at our previous articles:

·       A Comparison of the Global Minimum Tax in Different Countries

·       Vietnam Continued VAT Reduction to Support Recovery in 2024