After 16 years of implementation, the 2008 Value Added Tax (“VAT”) Law has revealed numerous limitations and inadequacies in practical application. One of the most significant issues is that the VAT rates for many goods and services do not accurately reflect industry practices or international norms. To address these shortcomings, on November 26, 2024, the National Assembly officially passed the 2024 VAT Law replacing the 2008 VAT Law (“2024 VAT Law”). In addition to retaining provisions from the current law, the newly revised and supplemented content primarily pertains to VAT rates, conditions for VAT deduction, and other significant updates. Below are the key highlights of the 2024 VAT Law.
Adjustments to VAT rates for various goods and services
Under the new regulations of the 2024 VAT Law, certain goods and services will be subject to a VAT rate of 10%, instead of the previous rate of 5%. Key items subject to the 10% VAT rate from July 1, 2025, include: Unprocessed forestry products; Sugar and by-products from sugar production, including molasses, bagasse, and mud waste; Specialized equipment and tools for teaching, research, and scientific experimentation; Cultural, exhibition, sports, and artistic performance activities; production, import, distribution, and screening of films.
Similarly, the 2024 VAT Law stipulates that some goods and services previously subject to a 0% VAT rate will now be subject to a 5% rate from July 1, 2025, including: Fertilizers; Offshore fishing vessels; Machinery and equipment specialized for agricultural production.
Addition of goods and services exempt from VAT
The 2024 VAT Law adds four categories to the list of goods and services exempt from VAT, including:
(i) Insurance services for oil and gas facilities, equipment, and foreign-flagged oil storage ships;
(ii) Services related to transporting patients, renting hospital rooms and beds at medical facilities, testing, imaging, blood and blood products used for patients, and elderly and disabled care services, including healthcare, nutrition, and cultural, sports, recreational, physical therapy, and rehabilitation activities; family planning services and health rehabilitation services for patients;
(iii) Public passenger transportation services by metro or inland waterway vehicles;
(iv) Artificial products used as permanent implants in the human body.
New regulations on cashless payments for VAT deductions
The 2024 VAT Law also revises the principles of input VAT deductions. Under the 2008 VAT Law, one of the conditions for input VAT deduction was that payments for goods and services had to be made via non-cash transactions, except for transactions under VND 20 million.
However, the 2024 VAT Law eliminates the exemption from non-cash payment documentation for transactions under VND 20 million to qualify for input VAT deductions. Instead, the 2024 VAT Law stipulates that the threshold for cashless payments will be determined by the Government according to economic and social conditions at different periods.
According to the current Government plan in Decision No. 1813/QD-TTg of 2021 on promoting cashless payments in Vietnam, the threshold for cashless payments applicable to input VAT deductions will gradually decrease over time. This aims to encourage individuals and businesses to limit cash usage, aligning with the Government’s policies. Consequently, in the future, transactions below VND 20 million may still require non-cash payment documentation to meet the conditions for input VAT deductions.
With these prominent updates, the 2024 VAT Law is expected to address existing inadequacies in the current regulations and create a more transparent legal environment for businesses. However, enterprises must promptly update and adjust their internal processes and policies to comply with the new legal requirements.
