Legal consultation on the loss of input vat entitlement

I. Latest updates on stricter invoice management regulations that may result in the loss of input VAT entitlement

In recent years, tax authorities have intensified their oversight of electronic invoice usage, VAT declarations, and the legitimacy of input transactions in order to prevent invoice trading, fraudulent tax refunds, and improper VAT deductions. The integration of electronic invoice data with the tax authority's management system enables real-time verification and reconciliation, making it significantly easier to detect discrepancies involving taxpayer information, tax identification numbers, payment documents, or fictitious transactions.

Furthermore, tax authorities have strengthened inspections and audits of enterprises with high-risk indicators, such as:

• Using invoices issued by enterprises that have ceased operations or abandoned their registered business addresses;
• Generating unusual or irregular invoice transactions;
• Claiming substantial VAT deductions without being able to prove payment flows or actual goods delivered.

In many cases, even where an enterprise has made payment and obtained an invoice, it may still lose its entitlement to deduct input VAT and have related expenses disallowed if the statutory conditions are not fully satisfied.

II. Understanding the loss of input VAT entitlement

1. How is the loss of input VAT entitlement interpreted under the Law on Tax Administration?

Pursuant to Clause 3, Article 12 of the Law on Tax Administration 2025, organizations and individuals who are required to deduct and pay deducted taxes on behalf of taxpayers must perform such deduction and declare and pay the deducted tax amounts in accordance with tax laws.

The term “loss of input VAT entitlement” generally refers to circumstances where the tax authority refuses to allow the deduction of declared input VAT as the taxpayer fails to satisfy the legal requirements prescribed by tax laws.

Common circumstances in which an enterprise may lose its VAT deduction entitlement include:

• Using unlawful invoices or invoices issued by enterprises that have absconded, ceased operations, or become uncontactable;
• Using invoices that do not reflect actual business transactions;
• Failing to provide non-cash payment documents for transactions where such documents is mandatory;
• Incorrectly declaring purchaser information or making declarations beyond the statutory deadline;
• Failing to prove the actual purchase and sale of goods or provision of services.

Where the VAT deduction entitlement is denied, an enterprise may be subject to:

• Recovery of previously deducted VAT amounts;
• Late payment interest;
• Administrative tax sanctions for inaccurate declarations or unlawful invoice usage.

2. What role does electronic invoice verification through the General Department of Taxation’s system play in preventing the loss of input VAT entitlement?

Verification of electronic invoices through the tax authority’s electronic invoice database plays a critical role in assessing the legality, validity, and authenticity of input invoices before a taxpayer claims a VAT deduction. Through such a system, tax authorities may:

• Verify the operational status of the seller;
• Compare invoice information against tax declaration records;
• Detect unusual or high-risk invoices;
• Confirm whether invoices have been lawfully issued and assigned verification codes;
• Assess consistency between the seller’s output revenue and the purchaser’s claimed input expenses.

For enterprises, proactively verifying invoices helps:

• Reduce the risk of using invoices issued by shell companies or high-risk enterprises;
• Detect invoice discrepancies promptly and request corrections;
• Minimize the risk of having VAT deductions disallowed during tax audits or inspections;
• Enhance transparency and internal tax governance.

3. Why can errors in a company’s name, address, or tax identification number cause the loss of input VAT entitlement?

A company’s name, address, and tax identification number constitute main identifying information on VAT invoices. If such information is incorrectly stated, the tax authority may determine that the invoice fails to meet the legal requirements for VAT deduction purposes. Common examples include:

• Incorrect purchaser tax identification number;
• Incorrect company name;
• Address inconsistent with registered tax information;
• Use of outdated company information that has not been updated.

Such errors may result in:

• Inability to accurately identify the taxpayer entitled to the VAT deduction;
• Doubts regarding the authenticity of the transaction;
• Inconsistencies with data recorded in the tax authority’s electronic invoice system.

However, not every error automatically results in the loss of input VAT entitlement. In certain circumstances, where the purchaser and the actual transaction can be clearly identified, the taxpayer may still be permitted to claim the deduction after making appropriate invoice adjustments in accordance with legal requirements.

4. What constitutes valid payment documents to ensure that an enterprise does not lose its input VAT entitlement?

For purchases of goods or services exceeding the statutory threshold, enterprises must possess non-cash payment documents in order to qualify for input VAT deductions. Valid payment documents generally include:

• Payment orders;
• Bank transfer instructions;
• Bank account statements;
• Electronic payment records compliant with applicable laws;
• Other legally recognized non-cash payment methods.

To be accepted, payment documents must satisfy the following conditions:

• Clearly identify the payer and the payee;
• Reflect payment details consistent with the invoice and underlying contract;
• Demonstrate that payment has actually been completed;
• Show that payment was processed through a lawful payment service provider.

Common risks that may result in the loss of VAT deductions include:

• Cash payments for transactions legally required to be made through bank transfer;
• Payments made from personal accounts rather than corporate accounts;
• Transfer descriptions inconsistent with the relevant invoice;
• Payments made through third parties without a clear legal basis.

III. Legal regulations relevant to the loss of input vat entitlement

1. What conditions must be satisfied to claim input VAT deductions and avoid losing input VAT entitlement?

Pursuant to Clause 2, Article 14 of the Law on Value-Added Tax 2024, as further guided by Section 2, Chapter III of Decree No. 181/2025/ND-CP, the conditions for deducting input VAT are as follows:

• Possession of a VAT invoice for purchased goods or services, a VAT payment document for imported goods, or a VAT payment document issued on behalf of foreign suppliers as prescribed in Clauses 3 and 4, Article 4 of the Law. The Minister of Finance shall prescribe the forms of VAT payment documents issued on behalf of foreign suppliers.
• Possession of non-cash payment documents for purchased goods and services, except for certain specific circumstances prescribed by the Government.
• For exported goods and services, in addition to the foregoing requirements, the taxpayer must possess:
  + Contracts executed with foreign parties for the sale, processing, or provision of goods and services;
  + Sales invoices for goods or services;
  + Non-cash payment documents;
  + Customs declarations for exported goods;
  + Packing lists, bills of lading, and cargo insurance documents (if applicable).

2. What is the procedure for filing an amended tax declaration upon discovering errors in order to avoid losing input VAT entitlement?

Pursuant to Clause 5, Article 12 of the Law on Tax Administration 2025, if a taxpayer discovers errors in a tax return previously submitted to the tax authority, the taxpayer may file an amended tax declaration before the competent authority announces a tax inspection or audit decision.

The amendment procedure generally includes the following steps:

• Reviewing previously filed tax returns and identifying errors relating to deductible input VAT;
• Preparing an amended tax declaration dossier in the prescribed form;
• Determining any increase or decrease in tax liability resulting from the amendment;
• Submitting the amended dossier to the directly managing tax authority;
• Paying any additional tax liabilities and late payment interest where the amendment results in additional tax payable.

The amended declaration must clearly explain the nature of the error, the reason for the adjustment, and the corresponding revised figures.

3. Which tax authority has the competence to determine whether an enterprise loses its input VAT entitlement?

Pursuant to Article 38 of the Law on Tax Administration 2025, the tax authority directly responsible for administering an enterprise has the authority to inspect, audit, and handle matters relating to tax obligations, including determining whether the enterprise satisfies the conditions for claiming VAT deductions.

In practice, the loss of input VAT entitlement is generally determined through:

• Examination of tax declaration dossiers at the tax authority;
• Tax inspections conducted at the taxpayer’s premises;
• Scheduled or unexpected tax audits.

Pursuant to Clause 2, Article 47 of the Law on Tax Administration 2025, based on the results of a tax inspection or audit, the head of the competent tax authority may issue decisions concerning tax administration, tax reassessment, tax recovery, administrative sanctions, or adjustments to deductible VAT amounts. Depending on the scale of the enterprise and its supervising authority, such competence may be exercised by:

• Regional Tax Sub-Departments;
• Provincial Tax Departments;
• The General Department of Taxation in certain special cases prescribed by law.

Furthermore, if there are indications of unlawful invoice usage, invoice trading, or serious tax evasion, tax authorities may coordinate with law enforcement agencies to investigate and handle the matter in accordance with criminal law.

IV. Questions regarding the loss of input vat entitlement

1. If an invoice contains an incorrect address but has already been declared, will the business lose its VAT deduction entitlement?

Not every case involving an incorrect address on an invoice results in the loss of input VAT entitlement. If the invoice still correctly identifies the taxpayer identification number, company name, and accurately reflects an actual transaction, the enterprise may prepare an adjustment record or issue an adjusted invoice in accordance with applicable regulations and continue to be considered for input VAT deduction.

2. If a supplier absconds after issuing an invoice, does an enterprise automatically lose its input VAT entitlement?

An enterprise does not automatically lose its input VAT entitlement merely as its supplier has absconded. The tax authority will conduct a comprehensive assessment of various factors, including the authenticity of the transaction, contractual documents, payment records, evidence of delivery and receipt of goods, and other relevant supporting documents.

If the enterprise can demonstrate that the transaction was genuine and satisfies all statutory requirements, its right to deduct VAT may still be protected.

3. Why can an electronic invoice that bears a tax authority authentication code still result in the loss of input VAT entitlement?

The fact that an electronic invoice has been authenticated with a tax authority code does not automatically guarantee eligibility for VAT deduction.

If the invoice reflects a fictitious transaction, is used for an improper purpose, or if the enterprise fails to satisfy the statutory conditions relating to payment documents or the use of goods and services for VAT-taxable activities, the tax authority may still refuse the corresponding input VAT deduction.

4. Does failing to declare an invoice from two years ago result in the loss of input VAT entitlement for such an invoice?

An enterprise may still submit an amended tax declaration for an omitted invoice, provided that the amendment is made within the statutory time and before any tax inspection or audit decision relating to the relevant tax period has been issued.

However, if the declaration deadline has expired or the enterprise no longer possesses sufficient supporting documents, there is a possibility that the VAT deduction entitlement associated with that invoice may be denied.

5. How can a lawyer assist an enterprise in challenging an administrative decision concerning the loss of input VAT entitlement?

A lawyer may assist an enterprise by reviewing invoices and supporting documents, assessing the legality of the tax authority’s decision, and representing the enterprise in explanation procedures, administrative complaints, or administrative litigation where there are reasonable grounds to believe that the loss of VAT deduction entitlement is inconsistent with applicable law. In addition, lawyers can help enterprises develop strategies to mitigate legal and tax risks in future tax declaration periods.

V. Are you looking for a reputable law firm to assist with issues related to the loss of vat deduction entitlement?

The loss of input VAT entitlement may expose enterprises to tax reassessments, late payment interest, and significant legal risks during tax inspections and audits. Thus, obtaining support from a legal service provider with expertise in tax law is essential to protecting the lawful rights and interests of the enterprise.

If your enterprise requires advice regarding VAT deduction conditions, the handling of high-risk invoices, amended tax declarations, or assistance with explanations and complaints before tax authorities, you may consider the legal services offered by NPLaw, a law firm with extensive experience in tax advisory services and assisting enterprises in resolving VAT-related issues in accordance with current legal regulations.

The information provided above is for reference purposes only. Should you require detailed advice regarding a specific situation, please contact NPLaw Firm for prompt legal consultation.