Regulations On Tax Withholding And Declaration For Individual Business Households On E-Commerce Platforms

On November 29, 2024, the National Assembly officially passed Law No. 56/2024/QH15, introducing significant amendments in the fields of securities, accounting, auditing, state budget, tax management, personal income tax, and e-commerce. Notably, the law adds regulations on the responsibility of withholding, declaring, and paying taxes on behalf of individual business households and self-employed individuals operating on e-commerce platforms.

This regulation is expected to have a strong impact on over 1.8 million online business households in Vietnam. According to the General Department of Taxation (Ministry of Finance, 2023), there are approximately 1.8 million individual business households operating through e-commerce platforms in Vietnam. However, only 30% of them fully declare their taxes, leading to significant tax losses. The implementation of this new regulation will help tax authorities better control revenue sources, but it also poses challenges for business households in financial management and tax compliance.

Key Changes In Tax Management For Individual Business Households On E-Commerce Platforms

Under Clause 5, Article 6 of Law No. 56/2024/QH15, the National Assembly has added Clause 4a to Article 42 of the 2019 Law on Tax Administration, which states:

E-commerce platform operators must withhold, declare, and pay taxes on behalf of sellers

Organizations managing e-commerce trading platforms and digital platforms with payment functions (including both domestic and foreign entities), as well as other digital economy organizations as defined by the Government, are required to:

• Withhold value-added tax (VAT) and personal income tax (PIT) before making payments to individual business households and self-employed individuals.
• Declare the withheld tax amount to the tax authorities.

If an individual business household or self-employed individual operating on an e-commerce platform is not subject to tax withholding, they are responsible for self-registering, declaring, and paying taxes according to regulations.

Expected Impact of the New Regulation

• Increase in state budget revenue: The Ministry of Finance estimates that the new regulation will increase tax revenue from e-commerce by 30-50%, equivalent to VND 4,000 – 6,000 billion per year.
• Reduction in tax losses: According to the Ministry of Finance (2023), 60% of e-commerce transactions do not fully declare taxes due to difficulties in revenue control.
• Simplification of administrative procedures and improved tax management efficiency: The new regulation will create a more transparent business environment and reduce tax evasion. Additionally, allowing e-commerce platforms to handle tax withholding and payment will help business households:
  • Reduce tax declaration procedures.
  • Save compliance costs.
  • Ensure fairness between e-commerce businesses and traditional businesses.

Guidance for Business Households

• Check revenue thresholds: If annual revenue exceeds VND 100 million, prepare for tax withholding.
• Monitor withheld tax rates: Ensure that e-commerce platforms apply the correct tax rates to avoid overpayment.
• Keep transaction records: Maintain documentation for tax reconciliation when needed.
• Consult tax authorities if necessary: Seek assistance for any issues in tax Declaration And Payment.

Updated Tax Obligations For Foreign Suppliers

In addition to changes affecting individual business households in e-commerce, Clause 4, Article 42 of the 2019 Law on Tax Administration has also been amended to clarify the tax obligations of foreign suppliers: Foreign suppliers without a permanent establishment in Vietnam must still register, declare, and pay taxes directly or through an authorized representative, as per regulations set by the Ministry of Finance.

Effective Date Of The New Law

Law No. 56/2024/QH15 will take effect on January 1, 2025, with some exceptions:

• Regulations on capital ownership and private bond transactions will take effect from January 1, 2026.
• Provisions in Article 4 will apply starting from the 2025 fiscal year.
• Clause b, Item 5, Article 6 will take effect on April 1, 2025.

Conclusion

The amendments to the Law on Tax Administration aim to optimize tax management for individual business households operating on e-commerce platforms, ensuring transparency and fairness in the tax system. Businesses and individuals should quickly update themselves on these new regulations to fully comply with tax obligations and avoid potential legal risks in the future.