The VAT deduction method is one of the most commonly applied tax calculation methods in Vietnam. Under this method, the amount of VAT payable to the State budget is determined by subtracting input VAT from output VAT.
This article provides a detailed overview of: eligible entities applying the VAT deduction method and how to calculate VAT according to the latest regulations in the 2024 VAT Law and Decree 181/2025/NĐ-CP.
1. Entities Eligible for the VAT Deduction Method
According to Clause 2, Article 11 of the 2024 VAT Law and Article 21 of Decree 181/2025/NĐ-CP, businesses and production establishments that fully comply with accounting, invoicing, and document regulations are eligible to apply the deduction method, including:
1.1. Enterprises with annual revenue of 1 billion VND or more
- Business establishments with annual revenue from sales of goods or provision of services from 1 billion VND and above.
1.2. Enterprises voluntarily registering for deduction
- Enterprises and cooperatives with annual revenue under 1 billion VND that voluntarily register for the deduction method.
- Newly established enterprises from investment projects or those with investment plans approved by competent authorities.
- Newly established enterprises that invest in fixed assets, machinery, equipment, tools, or have lease contracts for business premises.
1.3. Special cases
- Foreign organizations and individuals doing business in Vietnam subject to contractor tax (including VAT).
- Other economic organizations (including those under political or socio-political organizations, public service units) with full accounting systems.
- Foreign organizations and individuals supplying goods and services for oil and gas exploration, development, and extraction, with VAT declared, deducted, and paid by the Vietnamese side.
- Newly established branches of enterprises applying the deduction method, where the branch declares VAT separately.
Note: Household businesses and individual business owners are not eligible for the VAT deduction method.
2. How to Calculate VAT under the Deduction Method
According to Article 20 of Decree 181/2025/NĐ-CP, the formula for calculating VAT payable is:
VAT payable = Output VAT – Input VAT deductible
2.1. Output VAT
- Determined by the total VAT on goods and services sold, recorded on VAT invoices.
- Formula:
VAT = Taxable price × VAT rate
If the selling price is VAT-inclusive, the pre-tax price is calculated as:
Price excluding VAT = Payment price / (1 + VAT rate)
2.2. Input VAT
- The total VAT stated on VAT invoices for purchased goods and services.
- Includes VAT payment documents for imported goods and services purchased from abroad that meet deduction conditions.
2.3. Practical Example
- Company A imports goods worth VND 500 million, VAT rate 10% → Input VAT = VND 50 million.
- The company sells the goods for VND 600 million, VAT rate 10% → Output VAT = VND 60 million.
- VAT payable = 60 million – 50 million = 10 million VND.
3. Conclusion
The VAT deduction method ensures transparency, allowing businesses to deduct input VAT while fulfilling their tax obligations accurately. Enterprises should pay attention to eligibility conditions and calculation methods to ensure compliance and avoid errors in VAT declaration and finalization.
