The e-commerce sector in Vietnam has become one of the fastest-growing economic industries in the past decade, with continuously increasing and stable revenues. Tax management in the e-commerce sector is of significant importance to ensure a revenue source and limit tax evasion.
1. Basic Information about E-commerce
Definition of E-commerce
Article 16 of Decree 52/2013/ND-CP (amended by Article 3 of Decree 85/2021/ND-CP) defines e-commerce services as follows: "E-commerce services are electronic commercial activities in which traders and organizations that provide e-commerce services establish an e-commerce website to create an environment for other traders, organizations, or individuals to engage in trade promotion activities, sell goods, or provide services. Traders and organizations providing e-commerce services do not include traders or organizations that solely provide website design services and do not directly participate in business operations, management, or coordination of activities on that website.”
Tax obligations in e-commerce activities
Regarding tax obligations for domestic organizations engaged in e-commerce, they must pay various taxes and fees, including business license tax, value-added tax (VAT), and corporate income tax (CIT).
Organizations that own e-commerce trading platforms are responsible for declaring and paying taxes on behalf of individuals as required by the tax authorities.
For the period when they cannot implement tax declaration and payment on behalf of individuals, these organizations must provide relevant business activity information of individuals through the platform as required by tax authorities in accordance with the law.
Individuals and sole proprietors within Vietnam engaged in e-commerce activities, such as selling products through social media platforms like Facebook, Zalo, Tiktok, Fanpage, Zalo Official Account; individuals earning income from digital content products and services as defined by e-commerce laws; individuals transferring internet domain names with ".vn" extension; and those renting out properties through applications like Agoda, Booking.com, Airbnb, also have tax obligations...
Business households and individual business owners with annual revenue exceeding 100 million Vietnamese Dong must fulfill their tax obligations, including value-added tax (VAT), personal income tax (PIT), and business license tax. They are responsible for accurately and honestly declaring and paying taxes on time, and they are legally accountable for the accuracy and completeness of their tax documentation.
Business households and individual business owners should contact the tax department in the location where their business is registered to register for taxes, following the guidelines provided in Article 8 of Circular No. 105/2020/TT-BTC.
For e-commerce and digital-based businesses provided by foreign suppliers without a permanent establishment in Vietnam, these foreign suppliers have the obligation to either directly or appoint a local entity to register, declare, and pay taxes in Vietnam, as stipulated by the Minister of Finance.
For foreign tax payers, including suppliers who do not have a permanent establishment in Vietnam, engaging in e-commerce, digital-based business activities, and other services provided to organizations and individuals in Vietnam, their initial tax registration submissions must be made to the tax authorities following the guidelines specified in the Ministry of Finance's Circular regarding the execution of certain provisions of the Tax Management Law.
Entities or individuals that withhold and remit taxes on behalf of foreign contractors and subcontractors should submit their tax registration documents to the tax authority responsible for their direct management. The tax registration documents should adhere to the regulations stipulated in Article 6 of Article 7 in Circular No. 105/2020/TT-BTC.
Foreign contractors and subcontractors, who are organizations conducting business activities and have tax obligations, including value-added tax (VAT) and corporate income tax (CIT), should follow the specified methods for declaration. They can choose to declare taxes using the standard method, direct method, or a mixed method according to the regulations in Circular No. 103/2014/TT-BTC.
Organizations in Vietnam that are partners of foreign digital platform suppliers without a permanent establishment in Vietnam, who disburse income derived from products and content services to individuals based on agreements with the foreign digital platform suppliers, should declare and remit taxes following the provisions of Article 8 and Article 16 in Circular No. 40/2021/TT-BTC.
Based on calculating personal income tax (TNCN) and value-added tax (VAT) for individuals and household businesses using e-commerce services.
According to Article 10 of Circular No. 40/2021/TT-BTC, the regulations are as follows:
Based on the calculation of taxes for household businesses and individuals, the tax base is the revenue, and the tax rate is applied to the revenue.
1. Taxable Revenue
Taxable revenue for VAT and TNCN for household businesses and individual entrepreneurs includes the revenue from all sales, processing, commissions, and service supply, generated during the tax period from manufacturing and trading activities of goods and services. This includes bonuses, sales incentives, marketing promotions, trade discounts, settlement discounts, financial support, monetary and non-monetary support, additional fees, surcharges, and extra charges as stipulated by regulations. It also encompasses compensation for contract breaches, other compensation (only included in TNCN taxable revenue), and any other revenue enjoyed by household businesses and individual entrepreneurs, regardless of whether the money has been received or not.
2. Tax rate applied to revenue
a) The tax rate applied to revenue includes the VAT rate and the TNCN rate, with specific rates for each field and industry as instructed in Appendix I attached to this Circular.
b) In cases where household businesses or individual entrepreneurs operate in multiple fields or industries, they shall declare and calculate taxes based on the tax rates applied to revenue for each specific field or industry. In instances where the household businesses or individual entrepreneurs cannot determine the taxable revenue for each field or industry or the determined revenue does not align with the actual business operations, the tax authorities shall establish the taxable revenue for each field or industry as prescribed by tax management regulations.
3. Determining the tax amount to be paid
The amount of VAT to be paid = Taxable VAT revenue x VAT tax rate
The amount of PIT to be paid = Taxable PIT revenue x PIT tax rate
In which:
- Taxable VAT revenue and taxable PIT revenue are determined according to the guidance in Article 1 of this Circular.
- The VAT tax rate and the PIT tax rate are specified in Appendix I issued with this Circular.
According to this, for individuals and households conducting business through websites and e-commerce platforms, when they receive bonuses, sales support, promotions, commercial discounts, payment discounts, or monetary and non-monetary assistance, these amounts are considered business income and subject to Personal Income Tax (PIT) and Value Added Tax (VAT).
In Appendix I issued with Circular 40/2021/TT-BTC, the tax rates for bonuses, sales support, promotions, commercial discounts, payment discounts, or monetary and non-monetary assistance for individual businesses subject to VAT are 1%, and for PIT, it is 0.5%.
For bonuses, sales support, promotions, commercial discounts, payment discounts, or monetary and non-monetary assistance tied to the purchase of goods and services that fall under the category of those not subject to VAT, those subject to 0% VAT according to VAT law are exempt from VAT. They only need to pay 0.5% PIT.
To enhance the management of e-commerce activities (TMĐT), the General Department of Taxation proposed to the Ministry of Finance and later the government to issue Decree No. 91/2022/NĐ-CP, amending and supplementing certain provisions of Decree No. 126/2020/NĐ-CP concerning the responsibility of e-commerce trading platforms to provide information to the tax authorities. This will be implemented on a quarterly basis through electronic communication via the General Department of Taxation's Electronic Information Portal.
Concurrently with the above measures, the General Department of Taxation has also built and officially launched the TMĐT Information Portal since December 15, 2022. Through this portal, many major e-commerce platforms such as Shopee, Lazada, Sendo, Voso, Tiki, among others, have shared information, including identification details such as name, tax number/business registration/citizen identification number, contact information such as email and phone number, business address, permanent address, as well as the group of business service sectors and bank account information.
3. Enhancing tax inspection to combat tax evasion in the e-commerce sector
Currently, in order to improve the quality of tax inspection and combat tax evasion in the e-commerce sector, the Ministry of Finance and the General Department of Taxation have consistently implemented a comprehensive set of solutions, ranging from improving the legal framework to promoting the use of advanced technology in management. Up to this point, these efforts have yielded several effective results, including:
- Mobilizing foreign service providers to fully participate in tax payment: After more than 6 months of implementing the Electronic Information Portal for Foreign Service Providers since March 21, 2022, there have been 36 foreign service providers who have registered, declared, and paid taxes through the portal. Among them, 6 major foreign service providers, including Meta (Facebook), Google, Microsoft, TikTok, Netflix, and Apple, which make up 90% of the revenue share in the e-commerce service sector, and operate on a cross-border digital platform in Vietnam, have registered for tax, declared and paid taxes in Vietnam. They have collectively paid tens of millions of USD and EUR, equivalent to hundreds of billions of Vietnamese dong in taxes. Meta, for example, has paid 16.8 million Euros, and TikTok has paid 81.7 billion VND.
- The coordinated efforts of the functional sectors: Thanks to the comprehensive guidance of the government and the close cooperation between state management agencies such as the Ministry of Public Security, the Ministry of Information and Communications, the Ministry of Industry and Trade, the State Bank of Vietnam, and others, the comprehensive tax management plan for e-commerce activities, approved by the Ministry of Finance, has been implemented. The General Department of Taxation has signed cooperation agreements with the Ministry of Industry and Trade to jointly provide information about e-commerce websites and applications.
Additionally, the General Department of Taxation has entered into a cooperation agreement with the Ministry of Information and Communications, along with its subordinate agencies, to collaboratively collect, transfer, and link information related to enterprises engaged in cross-border advertising. The agreement includes collecting lists of individuals with income from advertising on digital content products and services, as well as information about domestic enterprises providing telecommunications services and utilizing digital resources.
Simultaneously, cooperation with the Ministry of Public Security has been initiated to build and share a supportive tax management database. Furthermore, collaboration with the Cybersecurity Department under the Ministry of Public Security is also in place for the exchange of information regarding individuals with income from cross-border video-sharing platform advertising activities, as well as individuals involved in buying and selling goods and providing services on e-commerce websites and social networks to support tax management activities.
- Lack of specific legal framework: Currently, most developed countries have adopted trends and methods for e-commerce tax collection. The novelty and complexity of this industry require more in-depth research and legislation that is better suited to the current situation in Vietnam. In the current digital transformation landscape, especially due to the impact of the COVID-19 pandemic, the demand for electronic transactions has surged across all administrative, civil, economic, and social sectors. The environment and methods of transactions have also undergone significant changes with the increasing presence of digital platforms as intermediaries for online transactions, necessitating a suitable legal framework that can adapt to these evolving needs.
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- Practical Issues: Currently, many large global companies involved in digital economic activities continue to generate substantial revenue from consumers in another country without the need for a physical presence in that country. In the course of its development, Vietnam needs to establish a suitable income tax mechanism. However, determining an appropriate income tax presents significant challenges not only to Vietnam's tax authorities but also to tax authorities in general. In the context where e-commerce and digital business activities are becoming increasingly complex and sophisticated, monitoring transactions and tax obligations has become more challenging, and the traditional approach based on physical presence is no longer suitable. International tax policies have undergone significant changes to better accommodate this development.
Building a connected data repository across ministries and sectors to combat tax evasion
Although some positive results have been achieved, the management of digital business operations still faces many difficulties and challenges. In a report to the National Assembly in June 2022, the Minister of Finance, Ho Duc Phoc, pointed out that, due to the nature of the digital economy, rapid development of e-commerce, tax management is challenging. Tax collection on e-commerce platforms, digital platforms like Zalo, or cash-on-delivery (COD) payments is a new and challenging issue, with potential tax evasion due to servers located abroad.
Furthermore, business participants on digital platforms, e-commerce platforms, include both domestic and foreign entities, making it difficult to determine their tax jurisdiction. To combat tax evasion in this area, Minister Ho Duc Phoc directed the General Department of Taxation to enhance coordination with relevant ministries and agencies, build a synchronized data repository, connect and share information to support state management in general and tax management in particular.
Regarding the Tax sector, the General Department of Taxation has developed a plan to examine and cross-check information concerning the taxation of e-commerce activities involving certain domestic enterprises and non-resident foreign suppliers without a permanent establishment in Vietnam. This effort has guided entities to file and pay taxes in compliance with legal regulations, and recommended revisions and supplements to some tax-related policy issues associated with the management of e-commerce activities.
By implementing these synchronized solutions, most individual taxpayers operating in the e-commerce sector have demonstrated a sense of self-awareness and compliance with tax regulations. Some e-commerce platforms have also cooperated well in providing information to support tax management.