A newly established company in Vietnam must choose its value-added tax (VAT) calculation method: the deduction method or the direct method? The wrong choice can mean paying more tax than necessary or struggling with invoicing. This article compares the two methods under VAT Law 48/2024 and the currently effective guiding documents.
Quick comparison table
| Criteria | Deduction method | Direct method |
|---|---|---|
| Calculation | Output VAT minus creditable input VAT | Percentage rate × revenue (rate varies by sector) |
| Legal basis | Article 11, VAT Law 48/2024 | Article 12, VAT Law 48/2024 |
| Requirement | Complete VAT invoices for purchased goods/services | No input VAT invoices required |
| New companies | Estimated annual revenue of VND 1 billion or more → deduction method | Revenue below VND 1 billion → direct method for 02 years, unless voluntarily registering for the deduction method (Article 22, Decree 181/2025/ND-CP) |
| Suited for | Companies with significant input costs, exporters | Small companies, few input costs, service businesses |
Analysis of each difference
1. Tax mechanics: crediting inputs vs taxing revenue
Under the deduction method (Article 11), VAT payable equals output VAT minus creditable input VAT — the company effectively pays tax only on the value it adds. Under the direct method (Article 12), tax equals a percentage rate applied directly to revenue, with different rates by business sector. This is simpler but allows no credit for input costs.
2. Invoice requirements: the key dividing line
To use the deduction method, a company must hold complete VAT invoices for its input purchases. If suppliers cannot issue VAT invoices, or the company manages input invoices poorly, the deduction method loses its advantage. The direct method requires no input invoices — fitting business models with few invoiced input costs.
3. New companies: the VND 1 billion threshold
Under Article 22 of Decree 181/2025/ND-CP, a newly established company with estimated annual revenue of VND 1 billion or more applies the deduction method. Companies below VND 1 billion apply the direct method for 02 years — unless they voluntarily register for the deduction method. New companies must decide from the outset, because switching methods mid-stream triggers procedures.
4. The presumptive (khoán) method has been abolished — no longer an option
To be clear: Resolution 198/2025/QH15 abolished presumptive taxation from 01/01/2026. Although Article 12.3 of VAT Law 48/2024 references the “khoán method,” it no longer applies in practice. Companies can neither choose nor be subjected to the presumptive method anymore.
5. Law 09/2026/QH16 amends VAT Law 48/2024
Law 09/2026/QH16 (dated 24/4/2026) amends VAT Law 48/2024. When applying the rules on the two calculation methods, companies should consult the amended version — not only the original 48/2024 text.
Practical notes
- New companies should honestly estimate revenue and input-cost structure before choosing — the deduction method only pays off when invoiced input VAT is substantial.
- Exporters, and companies whose customers require VAT invoices, should almost always choose the deduction method.
- Note: do not cite Circular 103/2014 on foreign contractor tax when researching these two methods — it governs a different subject and easily causes confusion.
Conclusion
The deduction method suits companies with significant input costs and exporters; the direct method suits small companies with few input costs and service businesses. New companies should decide based on the VND 1 billion revenue threshold and the voluntary registration right under Article 22 of Decree 181/2025/ND-CP — keeping in mind that the presumptive method was abolished from 01/01/2026.
Disclaimer: This article was prepared by the AI Legal Council based on research of VAT Law 48/2024 (as amended by Law 09/2026/QH16), Decree 181/2025/ND-CP and Resolution 198/2025/QH15 in force at the time of writing, for general reference only. It does not constitute tax advice for any specific case.
Transparency notice: This article was drafted by an artificial intelligence system (AI Legal Council) and has undergone internal quality review; it does not purport to be the opinion of a licensed human lawyer.
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