How Can Foreign Businesses Stay Competitive Amid Vietnam’s Tax Shift?

Vietnam has just reshaped the e-commerce landscape by officially imposing import duties and VAT on low-value goods. This policy shift not only impacts international sellers operating through online platforms but also redefines how foreign businesses engage with the Vietnamese market.

Policy Changes: A Barrier or an Opportunity?

Starting February 18, 2025, Decision 01/2025/QĐ-TTg takes effect, ending the previous tax exemption for imported goods valued under 1 million VND. This means all e-commerce imports will now be taxed, raising costs and eroding the competitive edge of low-priced imported products.

According to Metric, in 2024, products priced under 1 million VND accounted for over 80% of total transactions on Vietnam’s e-commerce platforms. With the new tax in place, foreign sellers face shrinking profit margins, forcing them to adjust pricing strategies or explore new approaches to remain competitive.

Some businesses may see this as a challenge, but for forward-thinking brands, it is the perfect time to reassess and adapt their market entry strategies in Vietnam.

The Competition Between Imports and Local Goods

The increased cost of imported products creates an opening for domestic brands to capture more market share.

• Shifting Consumer Behavior: With higher prices on imported goods, consumers may opt for local alternatives that offer comparable value, faster delivery, and better after-sales services.
• Empowering Local Brands: Vietnamese manufacturers now have an opportunity to scale production, enhance quality, and capitalize on tax advantages to dominate the domestic market.
• E-commerce Platform Adjustments: Local marketplaces might tweak algorithms and policies to prioritize domestic products, further intensifying the competition between foreign and local brands.

This shift is not just about pricing—it marks a new era in the Vietnamese market, where foreign businesses must rethink their business models to sustain growth.

Direct Investment – A Sustainable Approach for Global Businesses

Rather than continuing to export goods and bear higher taxes, many international businesses are considering direct investment in Vietnam to leverage the country's long-term economic potential.

Vietnam – A Booming E-commerce Market

• A population of over 100 million, with a rapidly expanding middle class and increasing preference for online shopping.
• E-commerce sales surpassed $25 billion in 2024, growing at an annual rate of 18-25%, making Vietnam one of the fastest-growing e-commerce markets globally.
• Advanced logistics, digital payment systems, and technological infrastructure are accelerating market accessibility for international players.

Advantages of Establishing a Presence in Vietnam

• Lower Import Costs: By setting up warehouses or production facilities in Vietnam, businesses can reduce import duties and logistics expenses, optimizing product pricing.
• Trade Agreement Benefits: Manufacturing in Vietnam allows businesses to export to key markets such as the EU, Japan, and ASEAN with preferential tariffs under various Free Trade Agreements (FTAs).
• Stronger Supply Chain Control: Local distribution centers provide better inventory management, faster deliveries, and an enhanced customer experience.

Suitable Investment Models

• Establishing a subsidiary or representative office to gain a direct market presence and better understand consumer trends.
• Investing in warehousing and logistics to ensure efficient supply chain management and seamless product distribution.
• Partnering with local businesses to leverage their expertise and existing networks, enabling faster market penetration.

The Perfect Timing to Pivot Strategy

Vietnam is not only a high-potential consumer market but is also emerging as a key manufacturing and logistics hub in Southeast Asia. The tightening of import tax regulations will filter out short-term opportunistic players, pushing foreign businesses to invest strategically rather than merely exploiting tax advantages.

Brands that adapt quickly and actively integrate into Vietnam’s e-commerce ecosystem will gain a significant competitive edge. This is not just about retaining market share but also about expanding operations in one of the world’s most dynamic economies.

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