From July 1, 2025, which cases will not be eligible for input VAT deduction in Vietnam?
From July 1, 2025, which cases will not be eligible for input VAT deduction in Vietnam?
Pursuant to Clause 2, Article 14 of the Value Added Tax Law 2024, the cases that will not be eligible for input VAT deduction include:
(1) Goods and services lacking lawful documentation:
Input VAT for goods and services without legitimate VAT invoices, tax payment documents at the import stage, or tax payment certificates on behalf of foreign parties as stipulated in Clauses 3 and 4, Article 4 of the Value Added Tax Law 2024.
Accordingly, invoices and documents deemed unlawful include fake invoices, altered invoices, or invoices that do not record mandatory information (such as name, address, taxpayer identification number of the buyer/seller if severe errors make the transaction unidentifiable).
(2) Absence of non-cash payment documents:
- For purchased goods and services (including imports), if there is no non-cash payment document, the input VAT will not be deductible, except for certain specific instances defined by the Government of Vietnam.
- This regulation changes from the past, where individual transactions under 20 million VND were exempt from the non-cash payment condition. However, from July 1, 2025, all transactions (regardless of value) must have non-cash payment documentation to qualify for deductions, except in special cases as defined by the Government of Vietnam.
(3) Goods and services used for non-VAT taxed production and business activities:
Input VAT for goods and services used for the production and business of goods and services not subject to VAT (as per Article 3 of the Value Added Tax Law 2024) is not deductible.
For example: humanitarian aid activities, public vocational education, or exportation of unprocessed natural resources and minerals (if not subject to tax).
(4) Goods and services not serving taxable business operations:
Input VAT for goods and services used for personal purposes, gifts, or activities not directly related to VAT-taxable production and business activities is not deductible.
For example: costs of purchasing personal vehicles, gifts not serving business operations.
(5) Export goods and services not meeting specific conditions:
For export goods and services, besides the conditions stipulated in (1) and (2) of this section, they must also have:
- A contract signed with a foreign party for the sale, processing of goods, and provision of services; invoices for goods sales and service provision;
- Non-cash payment documents; customs declarations for export goods; packing slips, bills of lading, and insurance documents (if any).
The Government of Vietnam will regulate deduction conditions for cases of exporting goods via overseas e-commerce platforms and other specific instances.
Other special cases:
(6) Input VAT for fixed assets, goods, and services purchased exceeding the deductible limit
Clause 2, Article 14 of Circular 219/2013/TT-BTC stipulates that input VAT for fixed assets, machinery, equipment, including input VAT for renting such assets, machinery, and equipment, and related input VAT like warranty, repairs in the following cases are not deductible but included in the original cost of fixed assets or allowable costs as defined by Corporate Income Tax Law and its guiding documents:
- Specialized fixed assets for the production of weapons, military equipment for national defense and security;
- Fixed assets, machinery, and equipment of credit institutions, reinsurance businesses, life insurance, securities trading, healthcare facilities, and training institutions;
- Civil aircraft, yachts not used for cargo or passenger transport business, or for tourism, hotel businesses.
For example: A fixed asset in the form of a passenger car with up to 9 seats (except for those used for cargo or passenger transport business, tourism, hotel business, or cars used as models and for test driving in car businesses) valued over 1.6 billion VND (excluding VAT), the input VAT corresponding to the excess value over 1.6 billion VND is not deductible.
(7) Business establishments not complying with tax deduction regulations as mentioned in (1) and (2) and invoices and documents generated from prohibited acts according to the Value Added Tax Law 2024 will not be eligible for VAT deduction.
From July 1, 2025, which cases will not be eligible for input VAT deduction in Vietnam? (Image from the Internet)
What is the method of VAT deduction in Vietnam from July 1, 2025?
According to Clause 1, Article 11 of the Value Added Tax Law 2024 (effective from July 1, 2025), the method of VAT deduction is defined as follows:
- The VAT payable under the deduction method equals the output VAT minus the deductible input VAT;
- The output VAT equals the total VAT of goods and services sold as recorded on the VAT invoice.
The VAT of goods and services sold as recorded on the VAT invoice is calculated by multiplying the taxable price of the goods and services sold by the VAT rate of those goods and services.
In cases where the invoice records the payment price as the price inclusive of VAT, the output VAT is determined by subtracting the taxable VAT price as defined in Point k, Clause 1, Article 7 of the Value Added Tax Law 2024 from the payment price;
- The deductible input VAT is the total VAT recorded on invoices of purchased goods and services, tax payment documents of imported goods, or tax payment documents for purchased services as defined in Clauses 3 and 4, Article 4 of the Value Added Tax Law 2024 and meeting the conditions specified in Article 14 of the Value Added Tax Law 2024.
From July 1, 2025, shall businesses that have not fully deducted the input VAT when dissolving get a refund in Vietnam?
Pursuant to Article 15 of the Value Added Tax Law 2024 which stipulates tax refund policies as follows:
VAT refund
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3. Businesses that only produce goods or provide services subject to a VAT rate of 5% and have undistributed input VAT from 300 million VND or more after 12 consecutive months or 04 consecutive quarters will be eligible for VAT refunds; in cases where businesses produce goods or provide services subject to multiple VAT rates, a refund is granted based on the allocation rate determined by the Government of Vietnam.
4. Businesses paying VAT under the deduction method will be eligible for VAT refunds upon dissolution or bankruptcy if there is excess VAT paid or undeducted input VAT.
When a cooperative group paying tax under the deduction method converts into a cooperative, the cooperative may inherit any excess VAT paid or undeducted input VAT to deduct or claim a refund as per regulations.
- Foreigners and overseas Vietnamese carrying a passport or international travel document may claim a VAT refund for goods purchased in Vietnam taken upon departure.
The Government of Vietnam will define the dossier, procedure, refundable tax amount, and refund method in cases stipulated in this clause.
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Thus, according to the above regulations, businesses that have not fully deducted the input VAT will be granted a VAT refund upon dissolution.
