Size of Vietnam's digital economy
Vietnam's digital economy has experienced significant growth in recent years. According to the e-Conomy SEA Report 2023, Vietnam's overall digital economy is estimated at US$ 30 billion in 2023, expanding by 19% compared to 2022. The country's digital economy is on track to reach US$ 45 billion in 2025 and may reach the size of US$ 90-200 billion by 2030. While e-commerce remains the dominant force in the digital economy, online travel, online media, transport, and food have maintained double-digit growth over the years.1 Considering the booming digital economy, the Government of Vietnam has been ramping up efforts to regulate and tax various e-commerce transactions and digital services, especially cross-border transactions involving Overseas Suppliers.
Scope and Coverage
Vietnam's regulations on digital taxation are provided under different instruments, with the two key instruments being the Law on Tax Administration No. 38/2019/QH14 and the Circular No. 80/2021/TT-BTC dated 29 September 2021 by the Minister of Finance elaborating some articles of the Law on Tax Administration.
The Law on Tax Administration 38/2019/QH14, which entered into force on 1 July 2020, introduces the mechanism for collecting tax from cross-border e-commerce and digital platforms. This mechanism is then detailed under Circular No. 80/2021/TT-BTC, which entered into force on 1 January 2022.
The Circular applies to overseas suppliers without permanent establishments in Vietnam carrying out e-commerce, digital platform-based business and other service provision for organizations and individuals in Vietnam ("Overseas Suppliers").
Identification of Consumers
As with most countries, the Overseas Suppliers must track certain information to identify if their consumer is based in Vietnam for the tax declaration. This may be based on evidence such as:
- Information relevant to payments made by the organisation or individual in Vietnam, such as information about the credit card based on the Bank Identification Number, bank account or other information used by the buyer to pay the Overseas Supplier.
- Information about the residence of the organisation or individual in Vietnam, such as payment address, delivery address, home address or similar information provided by the buyer for the Overseas Supplier.
- Information about the access location of the organisation or individual in Vietnam, such as the country code of the SIM card, IP address, landline location or similar information about the buyer.
When a transaction is found to be located in Vietnam, the Overseas Suppliers shall use payment information and information about the residence or access location of the organisation or individual in Vietnam. In case payment information is not available or unreliable, the Overseas Suppliers may use information about residence and information about access location.
Tax rates
The Circular states that tax payable is calculated on revenue earned by the Overseas Suppliers and different Corporate Income Tax (CIT) and Value-Added Tax (VAT) rates will be applied depending on the nature of the activities conducted. The VAT rates range from 1% to 5% of the total received revenue ('direct method'), while the CIT rates range from 0.1% to 10% of the total received revenue for the provisions of different goods and services. There is no threshold currently applicable as to the minimum revenue subject to tax registration and payment.
| Tax | Economic activities | Tax rate (% of revenue) |
|---|---|---|
| VAT | Distribution or provisions of goods | 1% |
| Services, construction (except construction involving the supply of raw materials and materials) | 5% | |
| Production, transportation, services provided together with goods, construction involving the supply of raw materials and materials | 3% | |
| Other business activities | 2% | |
| CIT | Services | 5% |
|
10% | |
|
1% for goods, 2% for services | |
| Providing and supplying goods in Vietnam in the form of in-country import/export or under international commercial terms | 1% | |
| Royalty | 10% | |
| Lease of aircraft (including aircraft engines and spare parts) and vessel | 2% | |
| Lease of drilling rigs, machinery, equipment, means of transport (except aircraft, aircraft engines and spare parts, and vessels | 5% | |
| Loan interest | 5% | |
| Transfer of securities, reinsurance to abroad | 0.1% | |
| Derivative financial services | 2% | |
| Construction, transportation and other activities | 2% |
Source: Author's compilation from Decree No. 209/2013/ND-CP; Decree No. 218/2013/ND-CP
Tax declaration and payment
Overseas Suppliers performing e-commerce activities without a permanent establishment in Vietnam are required to register with the Vietnamese Tax Authority for tax declaration and payment. Tax registration and payment can be made via the online portal of General Department of Taxation. The Law also allow for the use of an authorised entity for tax registration purposes.
In case the Oversea Suppliers fail to apply for taxpayer registration, declare and pay tax in Vietnam, their Vietnamese counterparts will be responsible for declaring, deducting, and paying tax on behalf of the Overseas Suppliers. For B2B transactions, the Vietnamese legal entities (i.e., organisations that are established and operating under Vietnam's law) shall be liable for withholding, declaring and paying the relevant VAT and CIT taxes. For B2C transactions, if an Oversea Supplier fails to self-declare and pay taxes on their income earned from Vietnam, the tax authority will have the right to enforce tax collection via commercial banks and intermediary payment services providers (IPSPs).
To facilitate commercial banks and IPSPs, the GDT shall publish a list of Overseas Suppliers that have not applied for taxpayer registration. Commercial banks and IPSPs must monitor this list to identify which payments will be liable for a withholding tax. For card payments or other forms of payment where commercial banks and IPSPs cannot withhold the applicable taxes on behalf of non-registered Overseas Suppliers, the commercial banks and IPSPs shall monitor the amounts transferred to non-registered Overseas Suppliers and report to the GDT by the 10th date of each month, using a prescribed form.
Implications for compliance
Considering that there is no minimum threshold for digital tax registration, all overseas suppliers will need to monitor their customer base in Vietnam and conduct tax registration or use an authorised third party for tax declaration and payment purposes. Furthermore, as required under Circular No. 13/2023/ND-CP has been in force since 1 July 2023, Overseas Suppliers as well as commercial banks and IPSPs should ensure compliance with the personal data protection regulation.
Footnote
1. Google, Temasek, and Bain & Company (2023). Vietnam E-Conomy SEA 2023.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.