A Practical Compliance Guide for Foreign Companies
Value Added Tax (VAT) is one of the most strictly enforced taxes in Vietnam. While VAT rates are relatively simple, invoicing rules, filing procedures, and documentation requirements create frequent compliance risks for foreign companies.
This guide explains how VAT works in Vietnam, applicable rates, filing obligations, input VAT recovery, and the most common VAT mistakes that trigger penalties and audits.
What Is VAT in Vietnam?
Value Added Tax (VAT) is an indirect tax applied to the value added at each stage of production or service delivery.
VAT generally applies to:
- Sale of goods
- Provision of services
- Importation of goods
- Certain cross-border services
VAT is collected by businesses and remitted to the tax authorities.
VAT Rates in Vietnam
Vietnam applies three main VAT rates, depending on the nature of goods or services.
Standard VAT Rates
| VAT Rate | Applies To |
|---|---|
| 0% | Exported goods and services |
| 5% | Essential goods & specific services |
| 10% | Most goods and services (standard rate) |
📌 Correct VAT classification is critical—misclassification is a common audit issue.
Zero-Rated VAT (0%): Exports & Cross-Border Services
The 0% VAT rate typically applies to:
- Exported goods
- Services provided to overseas entities and consumed outside Vietnam
However, strict conditions apply, including:
- Proper contracts
- Bank remittance evidence
- Customs documentation (for goods)
📌 Missing documentation can result in reclassification to 10% VAT.
Who Must Register for VAT?
All companies operating in Vietnam must:
- Register for VAT upon incorporation
- Use an approved VAT calculation method
- Issue VAT invoices for taxable transactions
VAT obligations apply even if revenue is low or irregular.
VAT Calculation Methods
Vietnam recognizes two VAT calculation methods.
1️⃣ Credit (Invoice) Method – Most Common
- Output VAT minus input VAT
- Requires proper VAT invoices
- Used by most foreign-invested companies
2️⃣ Direct Method
- VAT calculated as a percentage of revenue
- Limited applicability
- Less common for foreign companies
📌 Most foreign companies are required to use the credit method.
VAT Filing Frequency
VAT must be declared:
- Monthly (larger companies)
- Quarterly (smaller companies meeting thresholds)
Filing frequency depends on:
- Revenue level
- Company classification
- Tax authority determination
📌 Filing is required even if there is no VAT payable.
Input VAT Credit: What Can Be Recovered?
Companies may claim input VAT credit if:
- Expenses relate to taxable business activities
- Valid VAT invoices are obtained
- Payments meet non-cash requirements (where applicable)
Common Recoverable Input VAT
- Office rent
- Professional services
- Equipment purchases
- Utilities
- Business travel (with proper invoices)
📌 Input VAT without valid invoices is not recoverable.
E-Invoicing in Vietnam (Mandatory)
Vietnam requires electronic VAT invoices (e-invoices).
Key requirements:
- Approved e-invoice system
- Registration with tax authorities
- Real-time or near-real-time reporting
📌 Paper invoices are no longer accepted for VAT purposes.
VAT for Representative Offices
Representative Offices:
- Do not charge VAT on revenue
- Still subject to:
- Payroll-related taxes
- Reporting obligations
📌 Using an RO for revenue-generating activities can trigger retroactive VAT and penalties.
VAT vs Employer of Record (EOR)
If operating only via EOR:
- No VAT registration required
- No VAT filings
- No invoicing obligations
📌 VAT exposure begins only after entity setup.
Common VAT Errors Foreign Companies Make
❌ Issuing invoices late or incorrectly
❌ Using wrong VAT rate
❌ Claiming input VAT without valid invoices
❌ Misclassifying export services
❌ Missing VAT filings due to “no activity”
❌ Using overseas invoicing systems
These errors frequently lead to:
- Disallowed input VAT
- Back taxes
- Late payment interest
- Tax inspections
VAT Audits & Inspections
VAT is a primary audit focus for tax authorities.
Audits often review:
- Invoice validity
- VAT rate application
- Input VAT claims
- Revenue recognition
- Related-party transactions
📌 Strong documentation is the best defense.
VAT Compliance Checklist
✔ Correct VAT registration method
✔ Approved e-invoice system
✔ Accurate VAT rate classification
✔ Timely VAT filings
✔ Valid invoices for input VAT
✔ Proper payment records
How BusinessPartner.vn Helps With VAT Compliance
BusinessPartner.vn supports foreign companies with:
- VAT registration and method selection
- E-invoice system setup
- Monthly/quarterly VAT filings
- Input VAT review and optimization
- VAT audit and inspection support
- Accounting & tax outsourcing
- EOR → entity VAT transition planning
👉 Talk to our Vietnam VAT specialists to review your VAT compliance and reduce audit risk.
Recommended Reading
Timeline & Cost to Set Up a Company in Vietnam
Vietnam Corporate Income Tax (CIT) Explained
Tax Filing Deadlines in Vietnam
