Vietnam Officially Cuts VAT by 2% from July 1: A Strong Signal to Investors

Vietnam has officially rolled out a 2% reduction in value-added tax (VAT) from July 1, 2025, as part of a bold move to stimulate domestic demand and further strengthen its business climate. The policy reflects the government’s determination to support enterprises and consumers while maintaining economic momentum amid global uncertainties.

Under Decree No. 174, issued in accordance with Resolution No. 204 of the National Assembly, the VAT cut will apply through December 31, 2026. The reduction targets goods and services currently subject to the standard 10% VAT rate, with exceptions including telecommunications, banking, insurance, real estate, and certain other sectors. Crucially, the policy applies consistently across all stages — import, production, processing, and commercial distribution — ensuring clarity and simplicity for businesses operating in or with Vietnam.

What sets this measure apart is its breadth and duration. Compared to previous tax relief initiatives, this policy expands coverage to sectors such as transportation, logistics, and IT services — areas critical to Vietnam’s integration into global supply chains.

The Ministry of Finance estimates that the VAT cut could reduce state budget revenue by nearly VND 122 trillion(approx. USD 4.8 billion) through the end of 2026. However, officials emphasize that the move is designed to boost production, stimulate consumption, and ultimately generate broader economic benefits, including stronger revenue streams from other taxes.

To mitigate the budgetary impact, Vietnam’s government is ramping up tax administration reforms, enhancing digitalization, and tightening oversight in key areas such as land-related revenues, e-commerce, and digital platform businesses — all of which are of growing interest to foreign investors.

Sophie Dao, Lawyer and Senior Partner at GBS, described the VAT cut as a timely and strategic decision that underscores Vietnam’s pro-business stance. “This reduction demonstrates Vietnam’s responsiveness to the needs of both domestic enterprises and foreign investors. It shows a government willing to take decisive action to support growth, competitiveness, and investor confidence. In particular, sectors like manufacturing, logistics, and tech services stand to benefit, reinforcing Vietnam’s role as a dynamic hub in regional and global value chains.”

Dao added that the policy provides additional reassurance for international firms considering expansion or new investment in Vietnam, as it highlights both the stability and forward-looking nature of the country’s economic policies.

With this latest move, Vietnam continues to position itself as one of Asia’s most attractive investment destinations, offering both fiscal incentives and a clear commitment to creating a supportive environment for sustainable business growth.