In the modern economy, tax is an important tool for the State to regulate the market, create revenue for the budget, and promote socio-economic development. Among the current taxes, value added tax (VAT) is one of the most common types of tax that directly affects both businesses and consumers. However, not everyone clearly understands what VAT is, how it operates, and its role in economic life. In the following Article, Viet An Law will help clients answer the question: What is value added tax (VAT) in Vietnam and legal issues related to VAT.
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What is value added tax (VAT) in Vietnam?
Pursuant to Article 2 of the Law on Value Added Tax 2024: “Value Added Tax is a tax calculated on the added value of goods and services arising in the process from production, circulation to consumption.” Goods and services used for production, business, and consumption in Vietnam are subject to VAT, except for cases otherwise stipulated.
Some characteristics of VAT include:
VAT is an indirect tax borne by the final consumer;
VAT is a multi-stage consumption tax without duplication;
VAT is imposed based on the destination principle;
VAT has a wide regulatory scope.
Objects not subject to value added tax (VAT)
Pursuant to Article 5 of the Law on Value Added Tax 2024, objects not subject to VAT include:
Products of cultivation, afforestation, animal husbandry, aquaculture, fishing not yet processed into other products or only through ordinary preliminary processing, sold by self-producing and fishing organizations or individuals, and at the import stage;
Breeding animals under the Law on Animal Husbandry; plant propagation materials under the Law on Crop Production;
Animal feed under the Law on Animal Husbandry; aquaculture feed under the Law on Fisheries;
Salt products produced from seawater, natural rock salt, refined salt, iodized salt with sodium chloride (NaCl) as the main component;
State-owned housing sold to current tenants;
Irrigation, land plowing, dredging of in-field canals serving agricultural production; services of harvesting agricultural products;
Transfer of land use rights;
Insurance related to human beings (life, health, student insurance), agricultural insurance (livestock, crops), insurance for fisheries exploitation activities, reinsurance, insurance for petroleum equipment and foreign oil tankers operating in Vietnamese waters;
Financial, banking, securities services, including: credit granting, lending, brokerage, proprietary trading, consulting, capital transfer, debt trading, foreign currency trading, derivatives, and sale of secured assets for debt settlement;
Medical and veterinary services, including examination, treatment, disease prevention for humans and animals; care for the elderly and disabled; maternity, nursing, testing, blood and blood products, and patient transportation;
Funeral services;
Maintenance, repair, construction funded by 50% or more from people’s contributions or humanitarian aid for cultural, historical, community facilities, and policy housing;
Teaching, vocational training activities under the law;
Broadcasting and television are funded by the state budget;
Publishing, import, distribution of books, newspapers, magazines, textbooks, legal books, scientific and cultural books, propaganda posters, money and currency printing;
Public passenger transportation by bus, metro, or inland waterway means;
Import of machinery, equipment, and materials not yet manufactured domestically for research, oil and gas exploration, defense; leasing aircraft, ships, rigs from abroad;
Products and services for defense and security as approved;
Humanitarian, non-refundable aid; goods sold to foreign organizations for aid to Vietnam;
Goods in transit, transshipment, temporary import – re-export, temporary export – re-import, raw materials for export production, transactions between non-tariff zones and overseas;
Technology transfer, intellectual property rights, software, and software services;
Unprocessed gold bullion, ingots;
Export of natural resources, minerals not or semi-processed but restricted for export;
Medical devices replacing body parts, crutches, wheelchairs, specialized tools for the disabled;
Goods and services of households or individuals with annual revenue under VND 200 million; non-business assets for sale; national reserve goods; fees and charges as prescribed;
Certain imported goods: gifts, donations, duty-free luggage, moving assets, disaster relief aid, border trade goods, antiques, national treasures.
VAT rates
Types of VAT rates in Vietnam
0% rate
Applied to the following goods and services:
Exported goods including:
Sale to foreign organizations and individuals for consumption outside Vietnam;
Sale into non-tariff zones and consumption therein for export production;
Sale in isolated zones to persons who have completed exit procedures;
Sale at duty-free shops.
Exported services including:
Provision to foreign organizations and individuals for consumption outside Vietnam;
Provision to organizations in non-tariff zones and consumed therein for export production.
Other exported goods and services including:
International transportation; leasing of vehicles for overseas use;
Aviation and maritime services for international transportation;
Construction and installation of works overseas or in non-tariff zones;
Digital content provided abroad with supporting documents;
Spare parts, supplies for repair abroad and consumed overseas;
Subcontracted processing for export;
Goods and services otherwise not subject to VAT when exported, except in cases not eligible for 0% rate.
Not applicable to 0% VAT for:
Technology transfer, intellectual property rights abroad;
Reinsurance, credit granting, capital transfer, derivatives;
Postal, telecommunications services;
Export of raw natural resources, minerals under clause 23 Article 5;
Tobacco, alcohol, beer are imported and then exported;
Domestic fuel sold to non-tariff zones;
Automobiles sold to organizations, individuals in non-tariff zones.
5% rate
Applied to the following goods and services:
Clean water for production and living (excluding bottled, canned drinking water and soft drinks);
Fertilizers, ores for fertilizer production, pesticides, animal growth stimulants;
Agricultural services: canal excavation, plant care, preliminary processing, preservation of farm products;
Unprocessed or preliminary processed agricultural, forestry, aquatic products;
Semi-processed rubber latex; nets, twines, yarns for fishing nets;
Fishing vessels; specialized machinery and equipment for agricultural production;
Medical equipment; medicines, vaccines, pharmaceutical substances, raw materials for medicine;
Teaching and learning equipment such as models, drawings, boards, chalk, rulers, compasses;
Traditional, folk art performances;
Children’s toys; books of all kinds;
Science and technology services under the Law on Science and Technology;
Sale, lease, hire-purchase of social housing under the Law on Housing.
10% rate
The 10% VAT rate applies to goods and services not specified in the list of non-taxable, 0%, or 5% VAT items, and not subject to non-declaration or non-payment.
Methods of VAT calculation in Vietnam
Pursuant to Article 10 of the Law on Value Added Tax 2024, there are 2 VAT calculation methods: the credit method and the direct method.
Credit method
Applicable condition: Businesses fully implement accounting, invoices, and documents as prescribed by law;
VAT payable = Output VAT – Input VAT deductible.
Direct method
Applicable to: Trading in gold, silver, precious stones;
VAT payable = Percentage rate x Revenue.
How to pay VAT
Enterprises, organizations, and individuals may pay VAT via the electronic tax system, the national public service portal, internet banking of commercial banks, or directly at the bank.
Above is Viet An Law’s advice on answering the question of what value added tax (VAT) in Vietnam. If clients have further questions or require in-depth legal consultation, please contact Viet An Law for the best support.
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