What is the formula for calculating value-added tax payable by the direct method based on revenue in Vietnam from July 1, 2025?

What is the formula for calculating value-added tax payable by the direct method based on revenue in Vietnam from July 1, 2025?

Pursuant to Clause 2, Article 12 of the Law on Value-Added Tax 2024 (effective from July 1, 2025), the regulation is as follows:

Direct Calculation Method

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2. The value-added tax payable by the direct method based on revenue is calculated as a percentage rate multiplied by the revenue applicable as follows:

a) The applicable subjects include:

a1) Enterprises, cooperatives, and cooperative unions with annual revenue below the revenue threshold of 1 billion VND, unless voluntarily applying the tax deduction method as prescribed in Clause 2, Article 11 of this Law;

a2) Households, individuals producing, doing business, except as prescribed in Clause 3 of this Article;

a3) Foreign organizations without a permanent establishment in Vietnam, individuals abroad who are non-residents of Vietnam with revenue arising in Vietnam that have not fully implemented accounting, invoices, and vouchers policies, excluding foreign suppliers specified in Clause 4, Article 4 of this Law;

a4) Other organizations, except those paying tax under the tax deduction method stipulated in Clause 2, Article 11 of this Law;

b) The percentage rates for calculating value-added tax are stipulated as follows:

b1) Distribution, supply of goods: 1%;

b2) Services, construction without materials: 5%;

b3) Production, transport, services associated with goods, construction with materials: 3%;

b4) Other business activities: 2%;

c) Revenue for calculating value-added tax is the total amount of goods and services sales recorded on the sales invoice, including surcharges and additional fees received by the business entity.

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Thus, according to the above regulation, the formula for calculating value-added tax payable by the direct method based on revenue from July 1, 2025, is:

VAT payable by the direct method based on revenue percentage rate multiplied with the revenue

Where, the percentage rates are as follows:

- Distribution, supply of goods: 1%;

- Services, construction without materials: 5%;

- Production, transport, services associated with goods, construction with materials: 3%;

- Other business activities: 2%;

What is the formula for calculating value-added tax payable by the direct method based on revenue in Vietnam from July 1, 2025? (Image from the Internet)

How is input VAT deducted when paying VAT by the deduction method in Vietnam?

According to Clause 1, Article 14 of the Law on Value-Added Tax 2024 (effective from July 1, 2025), it is regulated as follows:

Business establishments paying VAT by the deduction method are allowed to deduct input VAT as follows:

- Input VAT of goods and services used for producing, trading goods, and services subject to VAT can be fully deducted, including input VAT not compensated for VAT-subjected goods and services that are lost or naturally wasted due to physical and chemical properties during transportation;

- Input VAT of goods and services used simultaneously for producing and trading both VAT-subjected and non-VAT-subjected goods and services can only be deducted for VAT of goods and services used for the production and business of VAT-subjected goods and services. The business establishment must separately account for deductible and non-deductible input VAT;

In cases where separate accounting is not possible, the input VAT deductible is calculated according to the percentage of revenue from VAT-subjected goods and services compared to the total revenue from goods and services sold;

- Input VAT for goods and services sold to organizations and individuals using humanitarian aid funds or non-refundable aid can be completely deducted;

- Input VAT for goods and services used for oil and gas exploration and development activities can be fully deducted;

- Input VAT incurred in any month or quarter is declared and deducted when determining the tax payable for that month or quarter. Any input VAT not fully deducted in that month or quarter can be carried forward to the next;

+ If a business establishment discovers errors or omissions in input VAT during declaration and deduction, they can amend before the tax authority or competent authority issues a tax audit or inspection decision as follows:

+ The taxpayer makes a supplementary declaration in the month or quarter when the erroneous input VAT arises, if the error leads to increased tax payable or reduced refundable tax;

+ The taxpayer must pay the additional tax payable or be liable for the recovery of refunded tax and pay late payment fees to the state budget (if any).

+ The taxpayer declares in the month or quarter when the error is discovered if the erroneous input VAT declaration merely reduces tax payable or only affects the carry-forward amount of input VAT to subsequent months or quarters;

- For non-deductible input VAT, the business establishment may account it as expenses for corporate income tax calculation or added to the asset's initial cost according to regulations on corporate income tax, except for VAT on purchased goods and services without non-cash payment documents as prescribed by the Government of Vietnam;

- the Government of Vietnam details the deduction of input VAT for: goods and services forming fixed assets serving employees; cases of capital contribution with assets; goods and services purchased under delegation to other organizations and individuals where the invoice is in the name of the delegate; passenger cars with up to 9 seats; business establishments with integrated and centralized accounting.

What are 8 prohibited acts in VAT deduction in Vietnam from July 1, 2025?

According to Article 13 of the Law on Value-Added Tax 2024 (Effective from July 1, 2025), the following 8 acts are prohibited in VAT deduction:

Act 1: Buying, giving, selling, organizing advertising, brokering the buying, and selling of invoices.

Act 2: Creating fictitious transactions of buying and selling goods or providing services or transactions not conformable with the law.

Act 3: Issuing invoices for goods sold and services provided during a temporary business suspension, except when issuing invoices to customers for contracts signed before the notification of business suspension.

Act 4: Using illegal invoices or documents, or illegal use of invoices or documents according to regulations of the Government of Vietnam.

Act 5: Not transmitting electronic invoice data to the tax authority as required.

Act 6: Tampering with, misusing, unauthorized access, or destroying information systems related to invoices and documents.

Act 7: Offering, receiving, or brokering bribes, or engaging in other conduct related to invoices and documents to obtain tax deduction, refunds, embezzle tax funds, or evade VAT.

Act 8: Colluding, concealing; connecting between tax management officials, tax authorities and business entities, importers, or between business entities and importers in using illegal invoices and documents or illegal use of invoices and documents to obtain tax deduction, refunds, embezzle tax funds, or evade VAT.