Understanding Key Indirect and International Taxes in Vietnam
Vietnam's tax system imposes various indirect and international taxes that significantly impact business operations. Companies must understand regulations regarding Value Added Tax (VAT), Special Consumption Tax (SCT), import/export duties, and international tax issues such as transfer pricing. VAT has three rates: 0%, 5%, and 10% depending on goods and services categories, with a 2% reduction for items subject to 10% VAT until December 31, 2026. Special Consumption Tax applies to luxury or non-essential goods like alcohol, beer, and tobacco, with the 2025 SCT Law effective from January 1, 2026, aiming to guide healthier lifestyles. Import duties have three tiers: preferential rates (MFN), special preferential rates (under FTAs), and ordinary rates (70% higher than preferential rates). Export duties apply only to certain natural resources with rates ranging from 0-40%. Regarding international taxes, enterprises engaging in related-party transactions must comply with transfer pricing regulations, where tax authorities assess the economic substance of transactions rather than their legal form. Foreign investors should carefully consider this substance-over-form principle when designing supply chains and operating structures in Vietnam to ensure compliance and optimize tax planning.
Overview of Vietnam's Indirect and International Tax System
Vietnam's tax system imposes several indirect and international taxes that significantly affect how businesses operate and structure their investments. Understanding these regimes is essential for compliance, effective tax planning, and managing costs when doing business in Vietnam.
Besides corporate income tax, businesses in Vietnam are subject to various indirect and international taxes on the production and trade of goods and services within the country. Although all taxes in Vietnam are levied at the national level, companies are obliged to pay taxes in the localities where their headquarters or branches are registered.
Value Added Tax (VAT)
Value Added Tax (VAT) is applied to goods and services at various stages of production, trade, and consumption, with three specific rates: 0%, 5%, and 10%. The scope of each rate is outlined by the new VAT Law No. 48/2024/QH15, with further details provided under Decree No. 181/2025/ND-CP and Circular No. 69/2025/TT-BTC.
VAT Rate Structure
- 0% rate: Applied to exported goods, exported services, and other designated export activities
- 5% rate: Applied to specific categories of goods and services as prescribed by the 2024 VAT Law and clarified by Decree 181
- 10% rate: Applied to all other goods and services not taxed at 0% or 5% or exempt from VAT
To aid economic recovery after COVID-19, goods and services subject to the 10% VAT rate are eligible for a 2% reduction until December 31, 2026, with some exclusions.
VAT Liability and Registration
Vietnam's VAT regime provides exemptions to several categories of goods and services. All entities producing or trading goods and services in Vietnam are generally liable to pay VAT, regardless of whether they have a physical presence in the country.
Every entity involved in producing or providing VAT-liable goods and services must register for VAT. In Vietnam, most companies use the credit (deduction) method for VAT declarations, allowing input VAT to be deducted from output VAT.
Special Consumption Tax (SCT)
Special Consumption Tax (SCT), or excise tax, is imposed on the production and importation of certain goods and services deemed to be luxurious or non-essential, such as alcohol and tobacco products.
SCT liability arises at both the importation stage and the point of sale. To avoid double taxation and an excessive tax burden, SCT paid upon importation is creditable against SCT payable at the sale stage.
2025 SCT Law Reforms
Effective from January 1, 2026, the 2025 SCT Law seeks to influence consumer behavior toward healthier lifestyles, including reducing the consumption of tobacco, beer, alcohol, and sugar. The law also enhances measures to combat smuggling and counterfeit goods.
In addition, the new legislation aims to promote the growth of green and clean industries, improve environmental protection, increase state revenue, and reform tax administration in a simple, transparent, and accessible manner. Overall, it is expected to create a more favorable and compliant tax environment for taxpayers.
SCT Calculation Methods
Under the SCT Law, the SCT payable comprises two components:
- SCT calculated under the ad valorem (percentage-based) method, based on the taxable price and applicable SCT rate
- SCT calculated under the specific (absolute) method, based on the quantity of taxable goods and the prescribed absolute tax rate
Import and Export Taxes
Import Tax
Most goods imported into Vietnam are subject to import duty, unless they qualify for an exemption under applicable regulations.
Import duty is generally calculated on an ad valorem basis, by applying the relevant import duty rate to the customs (dutiable) value of the imported goods. Import duty rates are categorized into three tiers:
Preferential Rates
Preferential rates apply to goods imported from countries that are granted Most-Favored-Nation (MFN) status by Vietnam. These MFN rates are consistent with Vietnam's World Trade Organization (WTO) commitments and apply to imports originating from other WTO member countries.
Special Preferential Rates
Special preferential rates apply to goods imported from countries that have entered into bilateral or multilateral preferential trade agreements with Vietnam, including free trade agreements (FTAs).
Ordinary Tax Rates
Ordinary tax rates shall apply to imported goods originating from countries, groups of countries, or territories that do not apply the MFN treatment or special preferences on import tax to Vietnam. The ordinary tax rates shall not be 70% higher than the preferential tax rates of the same goods items specified by the Government.
There are various cases in which a refund of import duties is possible if certain conditions are met.
Export Tax
Export duties in Vietnam are imposed on a limited range of goods, primarily natural resources, including sand, chalk, marble, granite, ores, crude oil, forest products, and scrap metal. Applicable export duty rates generally range from 0% to 40%, depending on the product category.
International Tax Considerations in Vietnam
Transfer Pricing
Transfer pricing rules are broadly consistent across jurisdictions, as they are generally founded on common international principles and approaches.
In Vietnam, transfer pricing regulations emphasize the substance-over-form principle, under which tax authorities assess the economic substance of transactions and business structures rather than their legal form. Accordingly, foreign investors should carefully consider this principle when designing and implementing supply chains and operating structures in Vietnam.
Related-Party Transaction Disclosure Requirements
Enterprises in Vietnam that engage in related-party transactions must disclose their related-party transactions to the tax authorities. They are required to prepare and submit transfer pricing documentation, including master files and local files, to demonstrate that their related-party transactions comply with the arm's length principle.
Importance for Businesses
Compliance with transfer pricing regulations is crucial to avoid tax adjustments, penalties, and disputes with tax authorities. Businesses need to ensure that the pricing and terms in their related-party transactions are consistent with what independent parties would agree to in similar circumstances.
Documentation and Compliance
Proper documentation is essential for defending transfer pricing positions during tax audits. Companies should maintain contemporaneous documentation that supports their transfer pricing policies and be prepared to provide detailed analysis of comparability, functional analysis, and economic justification for their pricing strategies.
Key Takeaways for SME Owners
VAT Compliance
SMEs must understand their VAT obligations, including proper registration, invoicing requirements, and filing deadlines. The reduced VAT rate available until December 31, 2026, provides temporary tax relief that businesses should leverage for improved cash flow management.
SCT Planning
Businesses dealing in goods subject to SCT should prepare for the changes introduced by the 2025 SCT Law. Understanding both the ad valorem and specific calculation methods is critical for accurate tax planning and pricing strategies.
Import/Export Optimization
Companies engaged in international trade should explore opportunities to benefit from preferential and special preferential import duty rates under Vietnam's FTAs. Proper classification of goods and documentation of origin can result in significant duty savings.
Transfer Pricing Readiness
Even smaller enterprises with cross-border related-party transactions should establish proper transfer pricing documentation and ensure their pricing policies can withstand scrutiny from tax authorities based on the substance-over-form principle.
Conclusion
Understanding Vietnam's indirect and international tax framework is essential for successful business operations and compliance. The VAT, SCT, import/export duties, and transfer pricing regulations each have unique characteristics that require careful attention to ensure compliance and optimize tax costs. Staying informed about recent legislative changes, particularly the 2024 VAT Law and 2025 SCT Law, will help businesses better prepare for their future tax obligations and maintain competitive advantages in the Vietnamese market.