Input VAT deduction is where FDI companies lose money quietly: the invoice is complete but payment evidence fails, or the channel is right but the invoice lacks a required field. Since VAT Law 48/2024 took effect on 1 July 2025, the non-cash threshold has fallen from VND 20 million to VND 5 million, pushing many small purchases that used to be safe into the risk zone.
Legal basis
- Article 14 of VAT Law 48/2024/QH15: a business establishment paying VAT under the deduction method may deduct input VAT on goods and services used for taxable production and trading when it holds the prescribed documents.
- Valid input documents include a lawful VAT invoice from the seller, the VAT payment voucher at import stage, or the voucher for tax paid for a foreign contractor, depending on the purchase type.
- Payment condition: each purchase of goods or services valued at VND 5 million or more requires non-cash payment evidence to qualify for deduction; this threshold was lowered from VND 20 million under the previous frame as from 1 July 2025.
- Input VAT arising in a period is declared for deduction when the full documents are available at declaration time; input serving non-taxable activities is not deductible under the Article 14 principle.
- Erroneous invoices are handled under Article 19 of Decree 123/2020/ND-CP as amended by Decree 70/2025/ND-CP: issue an adjustment or replacement invoice depending on the error type; a wrong buyer name or address is notified to the tax authority without a replacement invoice.
Three layers of conditions that must hold together
Layer one is transaction substance: the purchased goods or services must actually arise and serve the taxable production and business activities of the company. Layer two is documentation: a lawful VAT invoice in the company name and tax code, or the import-stage VAT payment voucher for imported goods. Layer three is payment: for each purchase of VND 5 million or more, money must move through a bank or another valid non-cash channel and be traceable to the invoice.
Missing any single layer disqualifies the input VAT of that transaction on inspection, however perfect the other two layers are. Accounting teams should test the conditions when the invoice is booked, because by year end cash paid for a VND 6 million purchase cannot be converted into a bank transfer.
The VND 5 million threshold: practical impact of the cut from 20 million
Before 1 July 2025, office supplies or small services under VND 20 million paid in cash still qualified for deduction. With the threshold now at VND 5 million, a whole range of recurring spending such as minor repairs, small transport jobs and individually invoiced hospitality can reach the limit. Companies should revise internal spending rules and cash advance limits for staff to match the new threshold.
As a management practice, many tax offices look at same-day purchases from the same seller together when testing the payment condition. The safe approach is to pay regular suppliers by transfer by default, even when each single invoice is under VND 5 million, and to prohibit splitting one procurement need into small invoices to dodge the threshold.
Incomplete invoices and the correction path
An invoice with missing or wrong information must be classified before correction. Wrong buyer name or address with the correct tax code: the seller notifies the tax authority under amended Article 19 of Decree 123/2020, no replacement invoice is issued, and the buyer keeps its deduction basis if the other core fields are valid. Wrong tax code, amount or rate: an adjustment or replacement invoice must be issued in the prescribed sequence, with a bilateral agreement minute where required.
While waiting for the seller to fix a defective invoice, the buyer should park that input VAT as pending instead of deducting it immediately. Once a valid replacement exists, declare it in that period under current guidance and keep the full chain of original invoice, minute and new invoice.
Frequently asked questions
What conditions are required to deduct input VAT?
Three layers must hold at the same time: the purchase is real and serves taxable activities; there is a lawful VAT invoice or an import-stage VAT payment voucher or a voucher for tax paid for a foreign contractor; and each purchase of VND 5 million or more is supported by non-cash payment evidence. Missing any layer means the input VAT of that transaction is denied on inspection.
Can an invoice above VND 20 million paid in cash be deducted?
That question rests on the old threshold. From 1 July 2025, Article 14 of Law 48/2024 lowers the non-cash payment threshold to VND 5 million per purchase. A VND 20 million invoice paid in cash therefore fails; even a VND 5 million invoice paid in cash loses the deduction condition, however lawful the invoice is.
How is an invoice with missing information handled?
Classify the error under Article 19 of Decree 123/2020 as amended by Decree 70/2025. A wrong buyer name or address with the correct tax code only needs the seller notification to the tax authority, with no replacement invoice. A wrong tax code, amount or rate requires an adjustment or replacement invoice with a bilateral agreement minute. The buyer deducts only once the final valid invoice exists.
Several purchases in one day, each under VND 5 million: is a transfer required?
A single invoice under VND 5 million does not itself trigger the non-cash payment requirement, tested per purchase. However, if same-day purchases from the same seller are in substance one need split into pieces, the tax authority may aggregate the value when testing the condition. The safe answer is default bank transfer for regular suppliers and an internal rule against splitting invoices to dodge the threshold.
This article has been quality-reviewed by the FLAW AI Legal Council