How to calculate VAT using the direct method based on revenue in Vietnam from July 1, 2025?

How to calculate VAT using the direct method based on revenue in Vietnam from July 1, 2025?

Pursuant to Article 12 of the VAT Law 2024, the VAT calculation using the direct method from July 1, 2025, is as follows:

For activities of buying and selling, crafting gold, silver, and precious stones:

- The VAT payable under the direct method on the added value is calculated by multiplying the added value by the applicable VAT rate for activities of buying, selling, crafting gold, silver, and precious stones.

The added value of activities involving buying, selling, and crafting gold, silver, and precious stones is determined by the payment price of sold items minus the payment price of purchased items correspondingly.

Note: In cases where businesses engage in buying, selling, and crafting gold, silver, and precious stones, they must separately account for this activity to pay tax using the direct method on the added value.

For other activities (excluding the buying and selling, crafting of gold, silver, and precious stones):

- The VAT payable using the direct method on revenue is calculated by the percentage rate multiplied by the revenue as follows:

+ Applicable subjects include:

++ Enterprises, cooperatives, alliances of cooperatives with annual revenue below the revenue threshold of 1 billion VND, except for cases voluntarily applying the deduction method specified in Clause 2, Article 11 of the VAT Law 2024.

++ Households, individuals engaged in production and business activities, except as specified in Clause 3, Article 12 of the VAT Law 2024.

++ Foreign organizations without a permanent establishment in Vietnam, non-resident individuals with revenue generated in Vietnam not fulfilling accounting policies, invoices, proofs, excluding foreign suppliers specified in Clause 4, Article 4 of the VAT Law 2024.

++ Other organizations, except for those paying tax using the deduction method specified in Clause 2, Article 11 of the VAT Law 2024.

+ The percentage rates for VAT calculation are defined as follows:

++ Distribution, supply of goods: 1%;

++ Services, construction without materials: 5%;

++ Production, transportation, services associated with goods, construction with materials: 3%;

++ Other business activities: 2%;

+ Revenue for VAT calculation is the total amount of money from selling goods, services recorded on sales invoices, including surcharges and additional fees that the business entity is entitled to.

- Households and individuals engaged in production and business that do not perform or perform incompletely accounting policies, invoices, proofs in accordance with the law shall pay VAT according to the fixed tax method stipulated in the Tax Administration Law 2019.

Who currently applies the direct method on added value in Vietnam?

According to Clause 2, Article 11 of the VAT Law 2008 amended by Clause 5, Article 1 of the Amended VAT Law 2013, the subjects applying the direct method on added value include:

- Enterprises, cooperatives with annual revenue below the 1 billion VND threshold, unless registering voluntarily for the deduction method as specified in Clause 2, Article 10 of the VAT Law 2008;

- Households, individuals engaging in business;

- Foreign organizations, individuals conducting business without a permanent establishment in Vietnam but with revenue arising in Vietnam not fully implementing accounting policies, invoices, proofs, except for foreign organizations, individuals providing goods, services for activities related to oil and gas exploration, development, and exploitation subject to the deduction method by Vietnam’s side;

- Other economic organizations, except for those registering for the deduction method as specified in Clause 2, Article 10 of the VAT Law 2008.

How to calculate VAT using the direct method based on revenue in Vietnam from July 1, 2025? (Image from the Internet)

How to calculate VAT using the direct method on added value in Vietnam?

Based on Clause 2, Article 13 of Circular 219/2013/TT-BTC guiding the calculation of VAT using the direct method on added value.

The formula for calculating VAT using the direct method on added value is:

VAT payable = Percentage rate x Revenue

Where:

- The percentage rate for calculating VAT on revenue is defined according to each activity as follows:

- Revenue for VAT calculation is the total amount of actual sale of goods and services as recorded on the sales invoice for taxable goods and services, including surcharges and additional fees that the business entity is entitled to.

In cases where the business entity has revenue from selling goods and services which are not subject to VAT and from export goods and services, the percentage (%) on revenue does not apply to this revenue.

Note:

(1) Business entities engaging in multiple sectors with varying percentage rates must declare VAT according to each sector corresponding to the prescribed rates; in cases where taxpayers cannot determine revenue according to each sector or in a total business contract including activities in various groups and cannot separate, the highest percentage will be applied by the industry or business sector.

(2) VAT calculation for activities involving buying, selling, crafting gold, silver, and precious stones is conducted as per Clause 1, Article 13 of Circular 219/2013/TT-BTC (amended by Article 3 of Circular 119/2014/TT-BTC), specifically:

VAT payable = Added Value x VAT rate

Where:

Added Value = Selling payment price - Corresponding purchase payment price

- Selling payment price is the actual sold price recorded on the invoice for gold, silver, precious stones, including crafting fees (if any), VAT, and other surcharges that the seller is entitled to.

- Purchase payment price is determined by the value of purchased or imported gold, silver, precious stones, inclusive of VAT used for the corresponding sale, crafting activities.