Input Invoices For Lump-Sum And Declaration-Based Household Businesses – Are They Necessary?

In the context of increasingly strict tax administration, the control and retention of input invoices are becoming crucial in the operations of individual household businesses. However, in practice, many household businesses still lack full awareness of the importance and potential risks associated with poor management of input invoices—especially for those using lump-sum or declaration-based tax methods.

1. Household Businesses Paying Tax Under The “Lump-Sum” Method – Are Input Invoices Necessary?

Legal Regulations:
• According to Circular 40/2021/TT-BTC, lump-sum households pay tax based on a predetermined revenue.
• They are not required to declare expenses and are not eligible for VAT deduction.
• Therefore, input invoices are not mandatory for tax finalization.

However, in practice, input invoices are recommended in the following cases:
• When there are unusually large transactions (e.g., high-value inventory purchases).
• When under inspection or suspicion by tax authorities for revenue misreporting.
• When planning to transition to declaration-based method or upgrade to a business entity (to prove the legitimacy of business activities).

Risks of not having input invoices:
• Difficult to prove the legal origin of goods (may be deemed as untraceable goods).
• When transitioning to an enterprise or applying for a loan, banks/financial institutions may require a clear transaction history.
• During tax inspections, if suspected of revenue evasion, the household may face reassessment with a higher fixed rate or tax arrears.

2. Household Businesses Paying Tax Under The “Declaration-Based” Method – Are Input Invoices Mandatory?

 Legal Regulations:
Declaration-based household businesses are required to:
o Maintain accounting books in accordance with Circular 88/2021/TT-BTC;
o Declare and pay VAT and PIT based on revenue recorded in output invoices;
o File tax declarations monthly or quarterly.

Role of input invoices for declaration-based households:
Tax declarations are submitted monthly or quarterly, accompanied by a business activity report. This report must include details on the purchase – sale – inventory of materials, tools, goods/products, and related expenses incurred during the period.
Therefore, to accurately record and track these details, declaration-based household businesses must retain complete input invoices and supporting documents. The goals are:
• To verify the origin and legitimacy of goods and input expenses.
• To provide a basis for the Tax Authority to monitor and assess the “K coefficient” – a risk rating for household businesses.

 Risks of not having input invoices:
• Difficult to prove the legal origin of goods (may be classified as goods of unclear origin).
• Without input invoices → inventory data lacks verification → discrepancies between actual stock and records → may raise suspicions of false reporting, hidden revenue, or tax evasion.

Recommendations From TPM Tax Ageny:

1. Regardless of using the lump-sum or declaration method, household businesses should develop the habit of requesting and retaining input invoices when purchasing goods or services.
2. If currently using or planning to switch to the declaration method, invest in:
   o Accounting software and organizing an accounting system;
   o Signing contracts and obtaining invoices from all suppliers, including small ones.
3. If planning to upgrade to an enterprise, having complete input invoices will form a solid foundation for financial management and dealings with banks or partners.
4. Household businesses should proactively seek advice from tax/accounting professionals or reputable tax agents to receive tailored guidance suitable to their industry, scale, and actual operations.

In case you need detailed consultation, please contact TPM via our website or hotline (+84) 28 3505 1800 for the fastest support.