This article provides an in-depth overview of value-added tax (VAT) in Vietnam, focusing on analyzing taxable objects including domestically produced goods, domestic services and imported goods. The content clearly presents the legal basis, tax calculation methods, tax declaration and payment procedures as well as preferential policies and practical challenges. The document is aimed at auditors, businesses and researchers, helping them gain knowledge to ensure compliance and optimize cash flow.
Overview of VAT taxable entities in Vietnam
Value Added Tax (VAT) has become one of the most important tools of the Vietnamese Government to regulate the economy, stabilize market prices and create sustainable revenue for the budget. Since Law No. 31/2013/QH13 took effect on July 1, 2014, the VAT mechanism has not only been improved through amendments and supplements but also been strictly applied in all stages of production, business and international trade. For auditors, understanding the exact subjects of VAT is the premise for conducting inspections and evaluating the validity of documents, avoiding the risk of administrative fines or tax arrears. For businesses, this knowledge helps optimize cash flow, take advantage of the input tax deduction mechanism, and at the same time build appropriate pricing strategies. In terms of academics, VAT provides a model for studying fiscal theory, comparing the advantages of the deduction tax system and the traditional turnover tax.
The aim of this article is to systematically present the concepts, legal basis, tax calculation methods, scope of application and subjects of VAT in Vietnam, and at the same time deeply analyze the arising situations, illustrative examples with hypothetical data from the General Statistics Office and the General Department of Taxation. The final part will provide contributions on international policies and trends, helping readers - especially auditors, businesses and researchers - have a comprehensive view and practical applications.
Legal basis for determining VAT taxable entities
Law on Value Added Tax No. 31/2013/QH13, supplemented by Law No. 71/2014/QH13, is a framework document defining the basic principles of VAT. According to Article 2, VAT applies to the provision of goods, services and imports; Article 3 stipulates three tax rates; Article 4 provides the definition of value added. On that basis, the Government and the Ministry of Finance have successively issued guiding decrees and circulars.
Decree 209/2013/ND-CP provides detailed regulations on documents, vouchers, methods of calculating deductible and direct taxes, as well as conditions for tax exemption and non-taxation. Decree 100/2023/ND-CP supplements the regulation requiring organizations providing cross-border electronic services to declare and pay VAT when their revenue in Vietnam exceeds VND 100 million per year. Circulars 219/2013/TT-BTC and 78/2024/TT-BTC provide detailed instructions on electronic invoices, tax rate declaration and determination of taxable prices for promotional goods and gifts. Consistent compliance with the Law, Decree and Circular is the minimum requirement for businesses and audit departments to ensure that the VAT declaration and payment process is error-free, minimizing the risk of being penalized under Decree 125/2020/ND-CP.
Distinguish between taxable and non-taxable objects
The essence of VAT lies in levying the added value of products or services at each stage in the production and business chain. The deduction mechanism allows businesses to deduct the input VAT paid when purchasing raw materials from the output VAT payable when selling products. Thanks to this, only the actual added value is taxed, optimizing costs and avoiding double taxation.
Unlike VAT, turnover tax (according to Law No. 27/2008/QH12) is levied entirely on revenue without a deduction mechanism, leading to tax progression on the final selling price. Special consumption tax only applies to some luxury goods, with room for input deductions, while import tax focuses on regulating international trade, calculated on the CIF price plus insurance and freight before determining import VAT. Clearly distinguishing between these taxes not only helps businesses declare accurately but also provides a foundation for auditors to fully assess the risk of errors.
Scope of application of VAT to goods, services and imports
Subjects subject to VAT under Law 31/2013/QH13 include goods and services used for production, business and consumption in Vietnam, including imported goods. All products produced or outsourced by organizations and individuals are subject to VAT, regardless of raw materials or final goods, if they meet the conditions for circulation on the market. Domestic services such as transportation, construction, consulting, and leasing of intangible assets are subject to VAT. For imported goods, VAT is determined on the CIF price plus the accompanying import tax, and businesses must declare and pay before customs clearance.
Recently, cross-border electronic services such as online advertising, software provision, streaming, music listening, movie watching, etc. are also subject to VAT. When the revenue of these services in Vietnam exceeds VND 100 million/year, foreign suppliers must register, declare and pay tax according to the provisions of Article 10 of Law 31/2013/QH13. In addition, the value of gifts and promotions over VND 200,000 are included in taxable revenue, ensuring that no potential revenue for the budget is missed.
List of goods and services not subject to VAT
Law 31/2013/QH13 clearly stipulates a number of groups of goods and services that are not subject to VAT to support socio-economic development and community security. Essential foods, raw agricultural materials, textbooks, medical services, and public education are exempted to reduce consumer costs and support people. The tax exemption policy applies to new investment projects in priority areas such as high technology and renewable energy, to encourage businesses to expand investment. To be exempted from tax, businesses must apply for a certificate of eligibility from the tax authority, continuously maintain records and documents, and make periodic reports according to Decree 209/2013/ND-CP.
Tax exemption and non-taxation benefits businesses in terms of reducing production costs, but also increases the pressure on compliance with records and supervision by tax authorities. Auditors need to pay attention to assessing whether businesses apply tax exemptions in accordance with regulations or not, avoiding cases of incorrect assessment leading to budget losses.
Tax rates and methods of calculating VAT taxable objects
The current VAT rate framework includes rates 0%, 5% and 10%. Rate 0% is for exported goods, international transport services and exported agricultural products; rate 5% is applied to essential goods and services such as food, clean water, medicine and education; rate 10% is for most common goods and services. This tax rate is issued under Circular 78/2024/TT-BTC, updated according to socio-economic fluctuations.
There are two methods of calculating VAT: deduction and direct. Large enterprises with revenue exceeding VND50 billion/year often apply the deduction method to maximize input tax deductions. The direct method, calculated as a percentage of revenue, is for small and micro enterprises, helping to reduce the burden of detailed accounting but making it difficult to control cash flow. Auditors need to analyze the reasonableness of the method selection, ensuring that enterprises do not abuse it to minimize tax obligations.
For example, Steel Company X purchases raw materials and incurs VND80 million in input VAT, then sells products and earns VND100 million in output VAT. When determining the obligation to pay to the budget, the company only has to deduct VND80 million and pay the remaining VND20 million. This figure, although hypothetical, reflects an effective deduction mechanism in reducing tax pressure on businesses.
Subjects subject to VAT in import activities
Import activities are a sector subject to strict control of the VAT mechanism. The CIF (Cost, Insurance, Freight) price plus the accompanying import tax becomes the basis for determining the VAT taxable price. Enterprises must declare electronic customs declarations according to Decree 08/2015/ND-CP and pay VAT before taking goods through the border gate.
During the audit, all documents from invoices, bills of lading, customs declarations to tax receipts must be reviewed. Enterprises are required to keep records for at least 10 years to be ready for inspections and audits. Compliance with this procedure not only helps minimize the risk of being fined but also makes the flow of goods and money transparent to serve national management goals.
Organizing declaration, payment and auditing of VAT taxable entities
In the context of digital transformation, e-invoices under Decree 123/2020/ND-CP have replaced traditional paper invoices, reducing fraud and increasing transparency. The VAT declaration and payment process includes creating output invoices, collecting valid input documents, declaring via the electronic portal and paying on time. The tax declaration period is divided by month or quarter, based on the previous year's revenue scale.
Internal audit and independent audit units will focus on assessing the completeness and validity of documents and documents, and checking late tax payments to determine penalties and late payment interest according to Decree 125/2020/ND-CP. It is recommended that businesses establish an automatic internal control system, directly connected to tax authorities and banks to promptly update tax payment status, avoid violations and protect reputation in the market.
Data analysis and hypothetical case studies
Assume that Trading and Service Company A has revenue of VND 50 billion in the first quarter of 2024, subject to a tax rate of 10%, resulting in output VAT of VND 4.545 billion. Input costs of VND 45 billion result in VAT of VND 4.090 billion. The tax payable is the difference of VND 455 million. At the same time, the company imports electronic components with a CIF value of VND 10 billion, subject to import tax of 5% equivalent to VND 0.5 billion. The import VAT taxable price is VND 10.5 billion, resulting in VAT payable of VND 1.05 billion. The total VAT payable by Company A during the period is VND 1.505 billion.
Through this case study, the audit department needs to compare purchase documents, electronic invoices, delivery notes and customs declarations. Determining incorrect input data or missing import declarations will lead to collection and late payment interest penalties, directly affecting the cash flow and reputation of the business. At the same time, it is recommended that businesses update their integrated automatic tax management software to minimize errors and enhance internal control efficiency.
International comparisons and trends
In the ASEAN region, many countries such as Singapore and Malaysia apply a goods and services tax (GST/VAT) at the rate of 7–10%, with a similar deduction mechanism. In Europe, the automatic tax refund model for exporting enterprises through the “VAT card” helps facilitate export activities and shorten the tax refund time. Vietnam is studying the application of an automatic tax refund mechanism via an electronic portal to reduce administrative procedures and transaction costs.
Blockchain technology is being tested in a number of countries to make the value chain transparent and prevent counterfeit VAT invoices. Vietnam can consider piloting it in the logistics and export e-commerce sectors. At the same time, the trend of adjusting tax rates flexibly according to “green” and “digital” sectors will become a focus to align with the national sustainable development and digital transformation policy.
Conclusion on VAT taxable subjects and recommendations
The subjects of VAT in Vietnam are very diverse, including domestically produced goods, imported goods, domestic services and cross-border electronic services. The clear distinction between groups of subjects and tax rates 0%, 5%, 10%, and the deduction and direct calculation methods is the foundation for tax compliance of enterprises and auditors' assessment.
To improve the effectiveness of VAT management, it is necessary to continue to simplify tax declaration procedures, expand the automatic tax refund mechanism, and promote electronic invoices integrated with banking systems. Authorities should issue detailed guidelines for cross-border electronic services, and expand VAT incentives for small and micro enterprises. Learning from the automatic tax refund model in the EU and applying blockchain to invoice management will help Vietnam move closer to the goal of a "digital government" and "digital economy" in a transparent and sustainable manner.
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