Vietnam Tax Compliance for SMEs - Managing Expense Settlement, VAT and CIT Deductibility
For small and medium-sized enterprises in Vietnam, tax risk rarely comes from complex structuring. It comes from daily operations. Sales managers host client dinners. Operations staff purchase materials. Marketing teams pay for digital ads. Employees book travel and request reimbursement.
Each of these routine transactions affects your expense settlement process, your invoice validation discipline, your Vietnam tax compliance, and your Corporate Income Tax deductibility.
When documentation is weak or payment methods are incorrect, SMEs face real consequences. These typically include denied input VAT credit, disallowed deductible expenses, increased Corporate Income Tax payable, and unnecessary exposure during tax inspection. What may seem like a minor reimbursement error can escalate into a broader compliance issue.
This guide is written specifically for SME owners, directors, and finance managers in professional services, trading, technology, and light manufacturing who want a practical, defensible, and audit-ready system for employee advances and expense settlement in Vietnam.
TLDR - What SME Owners Need to Know about Vietnam Tax Compliance
If you run an SME in Vietnam, focus on these core principles:
- Always validate invoices before reimbursement
- Use non-cash payment for transactions above VND 5,000,000
- Standardize employee advance and expense settlement forms
- Centralize foreign vendor payments
- Document the business purpose clearly
Strong documentation protects your VAT compliance, secures Corporate Income Tax deductibility, and improves audit readiness.
Who Needs to Know about Vietnam Tax Compliance?
This article is particularly relevant if your SME:
- Has fewer than 30 employees
- Will process frequent employee reimbursements
- Works with both domestic and foreign vendors
- Uses VAT invoices regularly
- Has a small finance team managing multiple responsibilities
Industries that typically encounter these risks include consulting and professional services firms, IT and SaaS companies, marketing agencies, trading and distribution businesses, and light manufacturers.
For example:
- A consulting firm may incur frequent client entertainment and inter-city travel expenses.
- A SaaS company may pay recurring foreign cloud hosting subscriptions.
- A trading company may purchase inventory from multiple domestic suppliers weekly.
- A light manufacturer may pay for urgent equipment repairs and raw material procurement.
If your company falls into one of these categories, your expense settlement workflow directly affects your tax position and financial stability.
Understanding Employee Advances and Expense Settlement in Vietnam Tax Compliance
What Is an Employee Advance for Tax Compliance?
An employee advance is a payment issued before an expense is incurred.
It creates a temporary receivable on the company’s books and represents company funds held by the employee until settlement occurs.
SMEs commonly use advances for business travel, client entertainment, procurement of goods, or operational purchases.
Common examples include:
- VND 15,000,000 advance for a three-day business trip to Da Nang
- VND 20,000,000 advance for urgent raw material purchase
- VND 8,000,000 advance for client entertainment during contract negotiation
- VND 12,000,000 advance for event organization deposit
The advance must be cleared through formal expense settlement within a reasonable timeframe.
Unresolved advances create multiple risks:
- Internal control weaknesses
- Possible misuse concerns
- Difficulty matching invoices to business purpose
- Red flags during tax inspection
Open advances that remain unresolved often become red flags during internal review or tax inspection.
What Is Expense Settlement to Ensure Tax Compliance in Vietnam?
Expense settlement is the reconciliation process after spending occurs.
It is the formal review mechanism that confirms compliance before reimbursement is finalized.
It confirms:
- What was spent
- Whether the spending was business-related
- Whether documentation meets Vietnam tax compliance standards
- Whether payment rules were followed (cash vs bank transfer, authorization if paid personally)
- If an employee spends more than the advance, the company reimburses the difference. If they spend less, the remaining balance must be returned.
For example, if an employee receives VND 10,000,000 and submits compliant invoices totaling VND 9,200,000, the remaining VND 800,000 must be returned to the company and properly recorded.
Delayed or poorly documented settlements are one of the most common internal control weaknesses in SMEs.
A Simple SME Expense Settlement Workflow That Works for Tax Compliance in Vietnam
Rather than adopting complex policies, SMEs benefit from a structured but practical workflow.
| Step | Stage | Key Actions | Purpose / Control Objective |
| 1 | Pre-Approval & Advance Request | - Employee submits advance request form - Manager approves business purpose - Finance records the advance | Prevents undocumented advances and improves accountability |
| 2 | Proper Payment Method | - For transactions > VND 5,000,000 use bank transfer or non-cash method - Avoid personal accounts for large transactions | Ensures payment discipline, supports VAT credit eligibility and CIT deductibility |
| 3 | Invoice Validation | Accountant verifies: - Company name & tax code accuracy - Valid invoice type - Digital signature present - Complete supplier information - Reimbursement paused if non-compliant | Ensures tax compliance and prevents invalid expense claims |
| 4 | Supporting Documents | Collect additional documents as applicable: - Travel tickets - Delivery & acceptance minutes - Itemized restaurant bills - Attendee lists - Contracts - Service confirmations | Establishes clear business purpose and audit trail |
| 5 | Settlement & Recording | - Reconcile expenses against advance - Confirm documentation completeness - Verify payment compliance - Process reimbursement after review | Ensures accurate accounting and full compliance before reimbursement |
For example, if a marketing employee pays VND 18,000,000 to a production vendor for campaign video services, the file should include:
– Signed service agreement
– Valid VAT invoice
– Bank transfer proof
– Acceptance confirmation of completed video
– Clear campaign purpose explanation
Invoice Validation for SMEs in Vietnam Tax Compliance
Invoice validation sits at the center of both VAT compliance and Corporate Income Tax deductibility.
In practice, most SME tax adjustments during inspection originate from weak invoice validation rather than intentional non-compliance.
There are two primary invoice types:
(VAT invoice / Sales invoice section unchanged)
SMEs often make errors at this stage by accepting invoices with incorrect company names, ignoring missing digital signatures, or failing to verify supplier details.
Additional common issues include:
– Supplier tax code inactive at time of issuance
– Invoice description too vague (e.g., “service fee” without scope detail)
– Invoice date inconsistent with contract or delivery timeline
Before processing expense settlement, finance should confirm invoice format compliance, accurate tax code information, date consistency, and business purpose alignment.
Payment Rules That Affect VAT Compliance and CIT Deductibility for Tax Compliance in Vietnam
Payment method directly influences deductibility.
For transactions above VND 5,000,000:
- Non-cash payment is typically required
- Bank transfer proof should be retained
- A payment authorization letter should exist if an employee paid on behalf of the company
The payment amount should match the invoice value and clearly identify the supplier.
Splitting invoices into smaller amounts to avoid the non-cash threshold may be challenged during tax inspection.
Corporate Income Tax Compliance in Vietnam - How Weak Documentation Increases Your Tax
Corporate Income Tax is calculated on profit, and the standard CIT rate for most enterprises is 20 percent.
To qualify as deductible, an expense must:
Relate directly to business activity
Be supported by a valid invoice
Comply with payment rules
Be fully documented
Consider a practical example.
Example 1 – Client Dinner
A sales manager submits a VND 12,000,000 client dinner expense paid in cash without an itemized bill.
Risk: denied VAT credit and full disallowance for CIT purposes.
Example 2 – Software Subscription
USD 3,000 annual SaaS subscription paid by employee’s personal credit card with no service agreement retained.
Risk: no VAT credit, possible foreign contractor tax exposure, and CIT disallowance.
Example 3 – Equipment Repair
VND 25,000,000 repair invoice but no acceptance minutes confirming completion.
Risk: expense challenged during inspection.
Small documentation gaps can therefore produce disproportionate tax consequences.
VAT in Vietnam Tax Compliance - Protecting Input VAT Credit
VAT payable equals output VAT minus input VAT.
For trading and manufacturing SMEs with high procurement volumes, protecting input VAT credit directly impacts working capital and monthly cash flow.
Invalid invoices, improper payment methods, or incomplete documentation can result in rejected VAT claims.
For example, losing input VAT credit on VND 200,000,000 of purchases results in VND 20,000,000 additional tax cost (assuming 10% VAT).
Special Risk Area in Vietnam Tax Compliance - Foreign Vendors and Digital Services
Technology and marketing SMEs frequently pay for cloud hosting, advertising platforms, and SaaS subscriptions.
Common examples include Google Ads, Facebook Ads, AWS hosting, Zoom subscriptions, CRM software, and design tools.
When employees use personal cards for these transactions:
VAT credit may not apply
CIT deductibility may be questioned
Contractor tax exposure may arise
In some cases, failure to properly assess foreign contractor tax obligations may result in retrospective tax assessments and penalties.
Common SME Mistakes in Vietnam Tax Compliance and How to Fix Them
Several recurring mistakes weaken SME compliance frameworks.
Mistake 1 - Reimbursing without checking invoice details
Fix: Ensure finance validates every invoice before approval.
Mistake 2 - Allowing large cash payments
Fix: Enforce non-cash payment for transactions above VND 5,000,000.
Mistake 3 - No clear business purpose
Fix: Add a mandatory business justification field in the settlement form.
Mistake 4 - Unclosed advances
Fix: Conduct monthly reconciliation of outstanding advances.
Mistake 5 - Foreign subscriptions paid personally
Fix: Move recurring foreign services to corporate accounts.
What a Tax-Audit-Ready Expense File Looks Like in Vietnam Tax Compliance
A defensible file includes:
- Advance request form
- Settlement form
- Valid VAT invoice
- Supporting documents
- Bank transfer proof
- Payment authorization letter
- Clear business purpose explanation
If your SME can present this documentation confidently, your compliance position is significantly stronger.
Frequently Asked Questions about Vietnam Tax Compliance
1. Is an expense deductible if paid in cash?
For small-value expenses, cash may be acceptable. However, for transactions above VND 5,000,000, non-cash payment is generally required to secure VAT credit and CIT deductibility. Even if the invoice is valid, improper payment method can invalidate the tax claim.
Best practice: Avoid cash for business-critical or high-value transactions.
2. Can I claim VAT if I receive a sales invoice?
Generally, no. Sales invoices do not separately show VAT and are usually not eligible for input VAT credit. Only valid VAT invoices meeting regulatory requirements allow VAT deduction.
Best Practice: Always verify invoice type before processing reimbursement.
3. What documents are required for employee reimbursement?
At minimum:
- Valid invoice
- Settlement form
- Supporting documents (tickets, contracts, itemized bills)
- Bank transfer proof (if required)
- Clear business purpose explanation
Best Practice: For higher-risk transactions (events, consulting, foreign services), additional documents such as contracts and acceptance minutes are strongly recommended.
4. How long should employee advances remain open?
Advances should typically be settled within 7–30 days depending on company policy. Long-outstanding advances increase internal control risk and attract attention during tax inspection.
Best Practice: Monthly reconciliation is advisable.
5. Do foreign digital services affect VAT compliance?
Yes. Payments to foreign vendors may trigger foreign contractor tax obligations. If improperly handled, the company may face additional tax liabilities and penalties.
Best Practice: Finance should review recurring foreign payments annually.
6. What happens during a tax inspection if documentation is incomplete?
Tax authorities may:
- Deny VAT credit
- Disallow expenses for CIT
- Recalculate taxable income
- Impose administrative penalties
- Charge late payment interest
Best Practice: Strong documentation significantly reduces negotiation risk during inspection.
Strengthen Your SME’s Vietnam Tax Compliance with United Consulting
Managing employee advances and expense settlement is not just administrative. It directly affects VAT compliance and Corporate Income Tax deductibility.
United Consulting supports SMEs across professional services, technology, trading, and manufacturing sectors by:
- Designing compliant expense settlement workflows
- Strengthening invoice validation systems
- Improving VAT compliance processes
- Reducing Corporate Income Tax risk
- Preparing businesses for tax inspections
👉 Contact United Consulting Asia to discuss your Vietnam employment and compliance strategy.
Schedule a free consultation!
Disclaimer:
The information provided in this article is for general informational purposes only and does not constitute legal, tax, or investment advice. While every effort has been made to ensure accuracy at the time of publication, laws and regulations may change. Readers are encouraged to consult with qualified legal or financial advisors before making decisions related to foreign investment or share transfers in Vietnam. United Consulting is not liable for any actions taken based on this content.
Vietnam Tax Compliance for SMEs - Managing Expense Settlement, VAT and CIT Deductibility