VAT Registration and Ongoing Compliance Considerations in Vietnam

Foreign investors often treat value-added tax (VAT) as a statutory requirement to be handled after incorporation. In Vietnam, VAT becomes part of the operational infrastructure almost immediately. VAT registration determines when a company can invoice. Invoicing controls whether customers can pay. Filing cadence shapes cash flow. Documentation standards influence audit outcomes.

These effects rarely appear at launch. They surface later during tax inspections, financial audits, or transaction reviews, when accumulated errors become visible. Investors evaluating Vietnam should therefore assess VAT early, not as a compliance item, but as a structural operating constraint.

When VAT registration activates commercial operations

Foreign-invested enterprises generally obtain a Vietnamese tax code as part of post-establishment procedures and are expected to be VAT-ready before commencing taxable activities; there is no practical turnover ‘safe period’ once commercial operations begin.

For most investors, VAT registration marks the point at which the business becomes functionally active. Without registration, compliant invoicing is impossible, customer collections stall, and accounting systems cannot be fully activated. Representative offices typically fall outside VAT scope, but any transition to revenue-generating activity immediately triggers registration requirements.

Selecting a VAT method shapes cost structure and scalability

Vietnam applies two VAT calculation methods. Under the credit method, companies charge output VAT and recover input VAT, provided they maintain compliant accounting books and VAT invoices. This method supports cost recovery and scalability but requires structured systems from day one. Most foreign-invested enterprises fall under this regime.

Under the direct method, VAT is calculated as a percentage of revenue, with no input VAT recovery. This simplifies administration but embeds tax into operating costs and is generally unsuitable for growing or margin-sensitive businesses.

This early structural choice affects pricing, procurement strategy, accounting complexity, and long-term tax efficiency. Investors planning regional integration or future expansion typically require the credit method, accepting higher compliance requirements in exchange for recoverable VAT.

VAT rates and temporary reductions affect pricing accuracy

Vietnam’s standard VAT rate is 10 percent. A temporary reduction applies to eligible goods and services, lowering the rate to 8 percent until December 31, 2026, under Resolution 204/2025/QH15, implemented by Decree 174/2025/ND-CP. The reduction does not apply universally, and several categories are expressly excluded.

Incorrect rate application is a common audit trigger. For foreign investors, this directly affects pricing accuracy, contract drafting, and margin projections, particularly where products or services fall near eligibility boundaries.

E-invoicing determines whether revenue can be collected

Electronic invoicing is mandatory nationwide under Decree 123/2020/ND-CP (as amended, including Decree 70/2025/ND-CP), with implementing guidance now under Circular 32/2025/TT-BTC (which replaced Circular 78/2021/TT-BTC).

Invalid or improperly issued invoices routinely result in rejected VAT credits and delayed customer payments. For foreign companies implementing ERP or regional finance systems, e-invoicing often becomes the first major localization hurdle. Without proper configuration, revenue recognition, customer settlement, and VAT recovery all stall simultaneously.

Input VAT recovery depends on documentation discipline

Recovering input VAT requires more than holding an invoice. Tax authorities typically expect supporting contracts, traceable bank payments, and clear service descriptions that align with business substance.

Common rejection scenarios include cash settlements, vague service narratives, missing payment linkage, and weak documentation for cross-border services. These issues frequently affect management fees, IT services, and shared-service charges from overseas affiliates.

When input VAT is denied while output VAT remains payable, the difference becomes a direct operating cost.

Filing VAT creates ongoing monthly work

VAT declarations are generally filed monthly. Quarterly filing may be available where prior-year revenue does not exceed VND 50 billion (US$1.9 million), in accordance with Decree 126/2020/ND-CP.

Monthly declarations are due by the 20th day of the following month. Quarterly declarations are due by the last day of the first month of the subsequent quarter. Filings are required even during zero-activity periods.

This creates a permanent reporting rhythm that must be resourced from the outset, regardless of transaction volume.

Cross-border services often create hidden VAT exposure

Vietnam applies VAT to imported services through a reverse-charge mechanism and levies VAT on imported goods at customs.

Foreign groups frequently underestimate this exposure. When regional headquarters charge IT or management services to their Vietnam subsidiary, VAT typically applies locally even if payment is made offshore. If documentation is incomplete, input VAT may be denied while output VAT remains payable.

For example, a Singapore parent invoices VND 500 million (US$19,000) in annual IT support to its Vietnam entity. Vietnam VAT at 10 percent creates VND 50 million (US$1,900) in output VAT. If the intercompany agreement lacks detailed service descriptions or payment traceability, the tax authority may reject the input VAT claim while still requiring payment of the output VAT. What appeared to be a routine group recharge becomes an unrecoverable tax cost.

In practice, overseas support services are one of the most common sources of unexpected VAT liability for foreign-invested companies.

Penalties and audit escalation increase financial risk

Late or underpaid VAT attracts interest at approximately 0.03 percent per day, in addition to administrative penalties. VAT audits frequently expand into broader corporate income tax reviews, particularly where invoice discrepancies or unsupported VAT credits are identified. What begins as a reporting issue can escalate into a balance-sheet event.

VAT timing directly impacts working capital

VAT is often payable before customer collections are received, while input VAT recovery may be delayed or partially denied. A VND 1 billion (US$38,000) transaction generates VND 100 million (US$3,800) in output VAT. If input VAT is rejected or deferred, that amount becomes an immediate working-capital burden. For early-stage foreign operations, this timing mismatch can materially affect liquidity planning.

VAT readiness signals operational maturity

For foreign investors, VAT in Vietnam affects audit outcomes, restructuring readiness, banking relationships, and enterprise valuation during exits or capital raises. Buyers and investors increasingly scrutinize VAT controls during due diligence, and unresolved VAT exposures can delay transactions or reduce deal value.

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