Vietnam VAT draft decree clarification deduction refunds pricing

As part of efforts to implement the revised 2024 Law on Value-Added Tax, the Ministry of Finance is developing a Draft Decree (“Draft”) that aims to clarify and operationalize new VAT regulations. The Draft is expected to improve tax transparency, strengthen administrative oversight, and assist businesses in achieving compliance. Key proposals under the Draft include several significant adjustments.

One notable change is the proposed reduction in the threshold for non-cash payments required to qualify for input VAT deductions. Currently, a non-cash payment is required for purchases of VND 20 million or more. The Draft lowers this threshold to VND 5 million (including VAT), reflecting a stricter approach to discourage tax fraud and enhance traceability in transactions.

The Draft also introduces clearer definitions for goods and services not subject to VAT. For instance, preliminary processed agricultural products are now defined as items that have undergone basic processes such as milling, peeling, drying, canning, or preservation using inert gases or sulfur. This clarification aims to help taxpayers and authorities more clearly identify qualifying VAT-exempt agricultural goods. Additionally, the Draft proposes extending VAT exemption to include artificial products that replace human body parts, as well as imported goods classified as relics, antiques, and national treasures in accordance with legal provisions. These clarifications are expected to facilitate more consistent interpretation and application of VAT exemptions.

Regarding VAT for promotion, under current regulations, promotional goods and services provided free of charge have a taxable price of zero. However, ambiguity remains for cases involving price reductions during promotions. To address this, the Draft specifies that the VAT taxable price in such instances shall be the discounted price applied during the registered or notified promotional period under commercial law.

To support businesses involved in supplying goods and services taxed at the 5% VAT rate, the Draft introduces new provisions for VAT refunds. Enterprises exclusively conducting 5% VAT activities may claim a refund if accumulated uncredited input VAT reaches VND 300 million or more over a 12-month period. Businesses with mixed VAT activities (5% and other rates) may also qualify for refunds if they can account separately for input VAT related to their 5% VAT-rated activities, and the threshold of VND 300 million is met.

In general, the Draft aims to provide clearer guidance and more consistent enforcement of the new VAT Law. The proposed amendments balance the objectives of effective tax administration with the need to simplify procedures and support business operations. If adopted, these changes are expected to facilitate smoother implementation of the VAT law and reduce interpretive uncertainties for both taxpayers and tax authorities.