VAT deduction is when a business is allowed to deduct input VAT when purchasing goods and services from output tax when selling goods, helping to avoid double taxation and reduce costs. From July 1, 2025, according to the 2024 VAT Law, all transactions for purchasing goods and services must have non-cash payment documents to be deductible for tax, regardless of transaction value.. Those tSpecial cases will be specifically regulated by the Government. Businesses need to understand and comply with regulations on VAT deduction to ensure their rights and avoid legal risks.
See more articles at: What is VAT? Subjects subject to VAT in 2025
What is VAT deduction?
According to information from Law Library, tax deduction is a method in the tax system that allows a certain amount to be deducted from the tax payable or taxable income before determining the final tax liability. In other words, an individual or organization does not have to pay tax on the entire income or revenue, but only pays tax on the remaining amount after deducting the allowable amounts, thereby reducing the tax burden and ensuring fairness.
In short, VAT deduction is understood as the fact that a business is allowed to deduct input VAT (arising when purchasing goods and services) from output VAT (collected when selling goods and services) before paying it to the state budget.
To better understand VAT, you can refer to the article VAT Overview – Vietnam Tax to get a comprehensive view before delving into the deduction mechanism.
Purpose of VAT deduction
The application of the VAT deduction mechanism has many important objectives in the management and operation of the tax system. First of all, this is a measure to prevent double taxation on the same value of goods and services, ensuring that consumers only pay tax once at the final consumption stage. This mechanism also contributes to maintaining the neutrality of VAT, meaning that the tax does not change the competitive nature between businesses, regardless of their field of operation or scale.
In addition, tax deductions help reduce financial pressure for businesses. When input tax payments are deducted, businesses have more working capital to reinvest, expand production and business, and improve cash flow. This is especially important in the context of constantly fluctuating input material and service costs.
In terms of state management, deductions also increase transparency in financial activities, because businesses are required to keep full invoices and valid documents to prove the deductible input tax. This is an important basis for tax authorities to control the accuracy of data, limit fraud and budget loss.
Some regulations on VAT deduction
Conditions for VAT deduction
Starting from 01/07/2025, according to Clause 2, Article 14 of VAT Law No. 48/2024/QH15 and specific instructions at Section 2, Chapter III Decree 181/2025/ND-CP, business establishments must simultaneously meet the following conditions to be eligible for VAT deduction:
Deduct VAT for valid invoices and tax documents
Business establishments must possess at least one of the following documents to be eligible for deduction, including: VAT invoice for purchased goods or services; VAT payment document at the import stage; or VAT payment document on behalf of foreign parties as prescribed.
VAT deduction for cinspiration from cashless payments
For invoices for purchasing goods and services (including imports) with a value of VND 5 million or more (including VAT), it is required to have non-cash payment documents (such as bank transfers), except for some special cases prescribed by the Government. Clause 2, Article 26 of Decree 181/2025 as follows:
| ITEM | STATUS |
| Invoices under 5 million VND/time or gifts, free samples | Free |
| Payment through employees according to internal regulations, then refund via bank transfer | Free |
| Buy on installments (≥5 million VND) — if payment is not due yet | Temporary exemption |
| Each bill is under 5 million, purchase multiple times a day, total ≥5 million | VAT deduction only if there is a transfer document |
| Payment method: clearing, through third party, by stocks/bonds… | Exempt if there is a contract/minutes and appropriate documents |
VAT deduction for export goods and services
In addition to the above requirements, to deduct input VAT for exported goods and services, businesses also need:
- Contracts signed with foreign parties (sales, processing, service provision)
- Export/Transaction Invoice
- Non-cash payment voucher.
- Customs declaration (if required by law).
- Shipping related documents such as bill of lading, packing list, insurance certificate (if any)
Principles of VAT deduction
The VAT deduction mechanism is implemented based on the principle that input tax can only be deducted if the tax arises from the production and trading of goods and services subject to VAT and has legal invoices and documents. This ensures that the deduction is made to the right subjects, avoiding fraud and budget loss.
Enterprises applying the deduction method must fully declare output tax and input tax for each tax period. If the input tax is greater than the output tax in the period, the difference will be carried forward to the next period or refunded if the prescribed conditions are met.
The principle of input VAT deduction is summarized as follows:
- Input VAT of goods and services used for production and taxable business is fully deductible, including natural loss or damage.
- If used for both taxable and non-taxable activities, only the portion related to the taxable activity can be deducted. Enterprises need to account separately or allocate according to the revenue ratio between the two types of activities.
- Input tax on goods and services used in humanitarian aid or oil and gas exploitation is fully deductible.
- Input tax arising in the month/quarter is declared and deducted immediately in the period, regardless of whether it has been used or is still in stock. If there is any surplus, it is carried over to the next period.
- If errors are discovered in the declaration, the enterprise can make a supplementary declaration before being inspected, and must adjust the amount of tax payable or the amount refunded accordingly.
- Input tax on goods and services used for gift giving, promotion or advertising purposes is still deductible if it serves taxable activities.
- Taxes paid according to the decision of the customs authority shall be fully deducted, if there is no fraudulent violation.
See more articles at: Articles 23 and 24 of Decree 181/2025/ND-CP
See more articles at: VAT deduction method – MAN
Deadline for declaration and deduction of VAT
Base Article 14 of VAT Law No. 48/2024/QH15, issued by the National Assembly on November 26, 2024 and officially effective from July 1, 2025, detailing the deadline for declaring and deducting input VAT arising in a month or quarter.
Declaration and deduction in the period of occurrence
Input VAT arising in a month or quarter must be declared and deducted immediately in that tax period to determine the amount of tax payable. If there is still tax that has not been fully deducted, the remaining amount will be deducted in the next period (month/quarter).
Additional declaration when errors or omissions are discovered
If there is an error in the declaration that increases the amount of tax payable or reduces the amount of tax refunded, the taxpayer must make a supplementary declaration immediately in the period in which the error occurs, and pay the full amount of the increased tax and late payment interest (if any).
If the error reduces the tax liability or only affects the amount of tax deductible, the taxpayer shall make a supplementary declaration in the period in which the error is discovered, and the deductible tax shall be carried forward to the next period.
Time limit for issuing supplementary declarations according to the Law on Tax Administration
Under current tax administration law, taxpayers may make additional declarations within 10 years from the deadline for submitting tax declarations for the period in which the error occurred, but must do so before the tax authority issues a decision on tax inspection or examination.
See more articles at: Deadline for VAT declaration and deduction in 2025: What should businesses pay attention to?
Formula for calculating VAT payable and illustrative situation
Formula for calculating VAT payable
VAT deduction method (commonly applied to eligible businesses)
This form of VAT calculation is widely applied to many qualified businesses, the formula is described:
|
VAT payable = Output VAT – Deductible input VAT |
In there:
- Output VAT number: is the total VAT recorded on the sales invoice. Output VAT is calculated by: Taxable price × VAT rate.
- Deductible input VAT: is the total VAT amount stated on the purchase invoice (or import document, payment document on behalf of), meeting the deduction conditions according to regulations.
Direct method on revenue (for individuals, households, small businesses)
Pursuant to the provisions of Clause 2, Article 12 of the 2024 Law on VAT, the amount of VAT payable is calculated as follows:
|
VAT payable = Revenue × Rate % |
% ratio depends on industry:
- Distribution of goods: 1%
- Services, construction (excluding materials): 5%
- Production, transportation, construction with raw materials: 3%
- Other business: 2%
Direct method on VAT (for gold, silver, precious stones)
For businesses trading and processing gold, silver and precious stones, the formula for calculating VAT is prescribed in Clause 1, Article 12, Law on VAT 2024, instructions at Decree 181/2025/ND-CP as follows:
|
VAT payable = (Selling price – Purchase price) × Tax rate (10%) |
Illustrative case
To easily understand and accurately apply VAT calculation formulas, thereby avoiding confusion and handling accurately when declaring, the "illustrative situations" section will closely simulate real accounting situations that businesses, business households or individuals may encounter.
Situation 1:
Business household Z opens a restaurant, VAT deduction method not applicable, declare quarterly, belongs to the VAT tax group directly on revenue with industry rate 3%. In Quarter IV/2025, sales revenue according to valid books and documents is 1,200 billion VND. No other special cases arise.
Calculation:
| By direct method on revenue:
TVAT payable = Revenue × % rate by industry. The household's quarterly revenue is 1,200,000,000 VND; industry rate 3% applicable to food service. So VAT payable = 1,200,000,000 × 3% = 36,000,000 VND. |
Situation 2:
Company X retails household goods, declares according to precious, apply tax rate 10%. In Quarter II/2025, the company issues 3 types of sales documents All payment prices include VAT.: Lot A is worth 330,000,000 VND, Lot B is 220,000,000 VND, Lot C is 110,000,000 VND. At the end of the quarter, the customer returns part of Lot B with payment price 22,000,000 VND (with adjusted invoice). On the purchase side, the company has a valid VAT invoice totaling input tax 96,800,000 VND (eligible for deduction according to Article 14 of the 2024 VAT Law).
Calculation:
| Due to sales documents price includes tax, need tax separation according to the instructions:
Tax = Payment price × tax rate / (1 + tax rate). With a tax rate of 10%, the coefficient is 10/110. The total payment price of A, B, C is 660,000,000 VND Gross output tax before refund is 660,000,000 × 10/110 = 60,000,000 VND Returned goods have a paid price 22,000,000 VND, the tax adjustment part is reduced accordingly 22,000,000 × 10/110 = 2,000,000 VND. So, net output VAT yours is 60,000,000 – 2,000,000 = 58,000,000 VND. Input VAT eligible for deduction is 96,800,000 VND. The amount of tax payable under the deduction method is equal to output – input: 58,000,000 – 96,800,000 = –38,800,000 VND. Negative results indicate no tax payable during the period and Transfer the remaining deductible VAT of 38,800,000 VND to the next period according to the provisions on consecutive deductions. |
Situation 3:
Company Y provides training services, with part of the program subject to VAT 10% and part not subject to tax. In Q3/2025, taxable revenue is VND 2.4 billion and non-taxable revenue is VND 1.6 billion. Input invoices include:
- Taxable service costs with input VAT of 120 million VND;
- Non-taxable service costs include input VAT of VND 30 million;
- Shared costs include input VAT of VND 200 million.
Enterprises cannot account for shared parts separately for each activity. During the period, Company Y issued taxable service invoices, output VAT was 380 million VND.
Calculation:
| The formula for calculating deductible input VAT is: Deductible input VAT = (General input VAT × Taxable revenue) / Total revenue.
Apply the above formula: Deductible input VAT = (200 million × 2.4 billion) / (2.4 billion + 1.6 billion) = 120 million VND. Therefore, Company Y is deduct 120 million VND of input VAT used for taxable activities. The output VAT payable is: Output VAT payable = Output VAT – Deductible input VAT = 380 million – 120 million = 260 million VND. Company Y needs to declare and pay the remaining output VAT of VND 260 million in the corresponding tax declaration period. |
Common mistakes in VAT deduction and how to fix them
When detecting any errors in the input VAT declaration, the enterprise is responsible for making additional declarations depending on the nature of the error in the period of occurrence or the period of discovery, with clear requirements on the obligation to pay more or transfer the undeducted tax to the next period. This is to ensure that the enterprise's deduction rights are protected, while helping to limit the risk of administrative penalties if it is overdue or not handled promptly. The following are some common cases in VAT deduction and how to fix them:
| ERROR IN VAT DEDUCTION | AFFECT | HOW TO FIX |
| Under-declaration of input invoices | Tax deductible, tax overpayment | Additional declaration in the arising period, additional payment & late payment (if any) |
| Over-declaration or incorrect declaration of input tax | Incorrect deduction, wrong carryover deduction | Supplementary declaration in the period of discovery, adjustment of the amount deducted for the period |
| Slow error handling | May be subject to penalties or loss of deductions | Make additional declarations as soon as they are discovered, before being inspected/examined. |
See more articles at: How is incorrect input VAT declaration regulated from July 1, 2025?
Conclude
VAT deduction is a pillar of current tax policy, allowing businesses to deduct valid input tax from their output tax liability, thereby avoiding double taxation, optimizing finances and increasing transparency. From July 1, 2025, both the 2024 VAT Law and Decree 181/2025/ND-CP have set stricter requirements—from deduction conditions such as valid invoices, non-cash payments for invoices of VND5 million or more, to the process of handling errors when declaring.
This update poses a significant challenge for businesses: they must improve internal processes, ensure compliance with deduction conditions, and be able to promptly handle errors, avoiding the risk of being charged back or losing deduction rights. With increasing requirements for transparent documentation and payments, compliance not only keeps businesses from being fined, but also helps optimize cash flow and make financial structures more effective.
If your business wants to ensure full compliance with the new VAT deduction regulations, from setting up a voucher accounting process to effectively handling errors, MAN – Master Accountant Network always ready to accompany you. With sharp critical thinking, updated tax law expertise, and modern accounting management tools, MAN is committed to optimizing tax obligations and increasing financial efficiency for businesses. Contact MAN today to receive accurate, economical and effective VAT deduction solutions.
Contact information:
- Company: MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Hotline: 0903 963 163 – 0903 428 622
- E-mail: man@man.net.vn
