Tax reform in Vietnam: Entrepreneurs in the focus of the new regulations

Tax reform in Vietnam: Entrepreneurs in the focus of the new regulations

Vietnam has implemented major reforms in its tax system in recent years to support both local and foreign businesses. A current example is the adjustment of taxation methods for small business owners, who now have to face the challenges of financial management and cooperation with corporate customers. Mr. H. from Binh Chanh, Ho Chi Minh City, who rents stage costumes, sets and speakers, registered to pay taxes according to the declaration method. He pays a VAT rate of 5% and an income tax of 2%, totaling 7% of his monthly income of VND100 million, or VND7 million. Although switching to the reporting method requires more work, it improves financial management.

Another example is Mr. T. from Go Vap, who runs a restaurant and has a fixed annual turnover of VND 1 billion. It has a VAT of 3% and an income tax of 1.5%, which corresponds to an annual tax payment of VND 45 million. Despite obstacles to the transition to tax filing, Mr. T. cites benefits such as improved cash flow and transparent accounting.

Changes in taxation

From June 1, 2025, around 37,000 households with an annual turnover of over VND 1 billion will be required to use electronic invoices. Next year, it is predicted that there will be more than 4,000 business households with a turnover of over VND 10 billion. Over half of these households will pay a flat rate tax of around 0.4%. Tax expert Nguyen Ngoc Tu explains that households that file a tax return must pay a maximum of 10% tax on their total income.

In addition, by abolishing the flat rate tax, business owners now have the opportunity to pay their taxes based on actual income. The current tax burden for traders is between 1.5% and a maximum of 10% of sales. Professor Dr. Nguyen Huu Huan highlights that calculating business tax based on sales makes sense because fixed tax rates simplify tax procedures, especially for small businesses.

Tax system and international relations

In the context of international economic relations, Vietnam has modernized its tax system as part of its political opening. For example, there are tax breaks for foreign companies. The general corporate tax rate is 20%, however tax relief in specific industries and regions can reduce corporate tax to 10%, 15%, 17% or even 0%. Since 1995, there has also been a double taxation agreement between Germany and Vietnam, which prevents double taxation of income.

VAT in Vietnam is usually 10%, although special services are exempt from this tax or subject to a reduced rate. Small and medium-sized businesses are required to file VAT quarterly, while family-run businesses must do so semi-annually. In addition, refunds of over VND 200 million can be requested from the tax office, which represents an important financial relief for many companies.

In summary, reforms in Vietnam's tax system aim to make business operations more transparent and distribute the tax burden more fairly. As the cases of Mr. H. and Mr. T. show, the switch to electronic invoicing and new tax return procedures brings both challenges and opportunities for companies.

Vietnam.vn and IHK Palatinate report on ongoing developments in the Vietnamese tax system.