From July 1, 2025, how many methods are there for VAT calculation in Vietnam?

From July 1, 2025, how many methods are there for VAT calculation in Vietnam?

Based on Article 10 of the Law on Value-Added Tax 2024 (effective from July 1, 2025), there are two methods to calculate VAT as follows:

- credit-invoice method- Direct method.

What are regulations on credit-invoice method in Vietnam?

According to Article 11 of the Law on Value-Added Tax 2024, the credit-invoice method is regulated as follows:

- The VAT payable under the credit-invoice method is the output VAT minus the creditable input VAT;- The output VAT is the total VAT on goods and services sold, as stated on the value-added invoice.

The VAT on goods and services sold, listed on the value-added invoice, is calculated by the taxable price of the goods and services sold multiplied by the VAT rate applicable to those goods and services.

In cases where the invoice records the payment price inclusive of VAT, the output VAT is determined by subtracting the taxable value as defined in point k clause 1 Article 7 of the Law on Value-Added Tax 2024;

- The creditable input VAT is the total VAT stated on the value-added invoices of purchased goods and services, tax documents of imported goods, or tax documents for services purchased as specified in clauses 3, 4 Article 4 of the Law on Value-Added Tax 2024 and meeting the conditions prescribed in Article 14 of the Law on Value-Added Tax 2024.

The credit-invoice method applies to business establishments adhering to full accounting, invoice, and document policies according to legal regulations on accounting, invoices, and documents, including:

- Business establishments with annual turnover from selling goods and providing services of 1 billion VND or more, excluding households and individuals engaged in production and business;- Business establishments voluntarily applying the credit-invoice method, excluding households and individuals engaged in production and business;- Foreign organizations and individuals supplying goods and services for exploration and development activities in oil and gas fields, paying tax under the credit-invoice method declared, credited, and paid on behalf by Vietnamese parties.

From July 1, 2025, how many methods are there for VAT calculation in Vietnam? (Image from the Internet)

What are regulations on direct method in Vietnam?

According to Article 12 of the Law on Value-Added Tax 2024, the direct method is regulated as follows:

(1) The VAT payable under the direct method on added value is calculated by multiplying the added value by the VAT rate applied to the activities of purchasing, selling, processing gold, silver, and gemstones.

The added value for purchasing, selling, processing gold, silver, and gemstones is determined by subtracting the input payment price of gold, silver, and gemstones from their output payment price.

If a business has activities involving buying, selling, and processing gold, silver, and gemstones, it must separately account for these to pay tax using the direct method on added value.

(2) The VAT payable under the direct method on revenue is calculated by multiplying the percentage rate by the revenue, applicable as follows:

- Applicable entities include:

+ Enterprises, cooperatives, union cooperatives with annual revenue below the 1 billion VND threshold, except for those voluntarily applying the credit-invoice method as defined in clause 2 Article 11 of the Law on Value-Added Tax 2024;

+ Households and individuals in production and business, except as specified in (3)

+ Foreign organizations without a permanent establishment in Vietnam, non-resident individuals with revenue generated in Vietnam not adhering fully to accounting, invoice, and document policies, excluding foreign suppliers defined in clause 4 Article 4 of the Law on Value-Added Tax 2024;

+ Other organizations, except those paying tax by the credit-invoice method as defined in clause 2 Article 11 of the Law on Value-Added Tax 2024;

+ The percentage for VAT calculations is regulated as follows:

+ Distribution, supply of goods: 1%;

+ Services, construction without materials supply: 5%;

+ Production, transportation, services attached to goods, construction with materials supply: 3%;

+ Other business activities: 2%;

+ Revenue for VAT calculation is the total sales price of goods and services recorded on the sales invoice, including surcharges and extra fees that businesses are entitled to.

(3) Households and individuals in production and business not adhering to accounting, invoice, and document policies according to legal requirements shall pay VAT using the presumptive tax method as regulated in the Tax Administration Law 2019.