VAT refunds for new investment projects: when can enterprises benefit from the “refund first - audit later” mechanism?

VAT refunds for new investment projects can significantly improve a company’s cash flow; however, the “refund first - audit later” mechanism is only available where statutory requirements are fully satisfied. If the refund dossier contains inaccuracies or lacks transparency, the enterprise may face the risk of tax reassessment, recovery of refunded amounts, and administrative sanctions. 

I. Can enterprises benefit from the “refund first – audit later” mechanism to immediately address working capital shortages?

The “refund first – audit later” mechanism for Value-Added Tax (VAT) does not apply to all cases. It is only available where the taxpayer satisfies all conditions prescribed under the Value-Added Tax Law 2024 and its implementing regulations.

In essence, such a mechanism is designed to prioritize cash flow for taxpayers that demonstrate a sufficient level of reliability in terms of documents, supporting evidence, and tax compliance history. It serves as a means of supporting enterprises requiring working capital during investment phases or business operations.

However, eligibility for such a mechanism ultimately depends on the tax authority’s assessment of the refund dossier's risks and the enterprise’s level of legal compliance. 

II. Detailed overview of VAT refunds for new investment projects

1. What constitutes a VAT refund application dossier for a new investment project?

Pursuant to Point a, Clause 2, Article 28 of Circular No. 80/2021/TT-BTC, a VAT refund application dossier for a new investment project is the set of documents submitted to the tax authority to request a refund of uncredited input VAT incurred by the investment project.

Such a dossier generally includes:

• An application for refund of State budget revenues using Form No. 01/HT;
• An Investment Registration Certificate/ Investment Certificate/ Investment License (where issuance is required by law);
• For projects involving construction works: a Land Use Rights Certificate, land allocation decision, land lease agreement, and construction permit;
• Documents of charter capital contribution;
• Licenses or documents demonstrating eligibility to conduct business activities subject to conditional business requirements;
• A schedule of invoices and supporting documents relating to purchased goods and services in the prescribed form;
• Documents relating to the Project Management Unit or branch responsible for implementing the VAT refund procedures (if any).

2. What are the most common cases eligible for VAT  refunds under current regulations?

Pursuant to Articles 29 to 36, Section 3, Chapter III of Decree No. 181/2025/ND-CP, VAT refunds may currently be granted in the following circumstances:

• VAT refunds for exported goods and services;
• VAT refunds for investment projects;
• VAT refunds for goods and services subject to the 5% VAT rate;
• VAT refunds for business entities undergoing dissolution, bankruptcy, or termination of operations;
• VAT refunds for goods purchased in Vietnam and carried abroad by departing travelers;
• VAT refunds for programs and projects funded by non-refundable ODA, non-refundable aid, or humanitarian aid;
• VAT refunds for goods and services purchased in Vietnam by entities entitled to diplomatic privileges and immunities;
• VAT refunds under international treaties to which Vietnam is a party.

Among the foregoing categories, VAT refunds for investment projects and export activities are the types that most frequently lead to practical difficulties concerning deduction conditions, payment documents, input tax records, and the legality of underlying transactions.

3. What is the difference in legal consequences between “incorrectly declaring a VAT refund dossier” and “fabricating a VAT refund dossier” to misappropriate State funds?

“Incorrectly declaring a VAT refund dossier” and “fabricating a VAT refund dossier” are both violations of tax regulations; however, they differ significantly in terms of fault, intent, and legal consequences.

Incorrect declaration of a VAT refund dossier generally refers to inaccuracies in reported figures, supporting documents, or refund eligibility conditions without sufficient evidence of an intention to misappropriate state funds. Such conduct is typically addressed through tax recovery measures, administrative sanctions, and late payment interest under tax administration laws. 

By contrast, fabricating a VAT refund dossier involves the use of forged documents, fictitious invoices, or sham transactions to unlawfully obtain tax refunds and misappropriate state funds. Such conduct goes beyond an ordinary administrative violation and may lead to criminal liability for offenses such as tax evasion, fraudulently appropriating property, or the illegal purchase and sale of invoices, depending on the nature and severity of the conduct and resulting damages.

4. What is meant by an investment project that has “not yet commenced operations,” and what is the cut-off date for determining the refundable tax amount?

Pursuant to Clause 1, Article 30 of Decree No. 181/2025/ND-CP, an investment project that has “not yet commenced operations” refers to a project that remains in the investment phase and has not generated revenue from its principal business activities.

During such a phase, input VAT incurred by the project must first be offset against VAT payable from the enterprise’s other business operations (if any). After such offsetting, if the remaining uncredited input VAT equals or exceeds VND 300 million, the enterprise may apply for a VAT refund.

The Decree also clearly establishes the cut-off date for determining refundable VAT as the date on which the investment project, investment phase, or investment component is completed and begins generating revenue. Accordingly, revenue does not include:

• Trial-operation revenue;
• Financial income; or
• Revenue generated from the disposal of raw materials or supplies.

From the date of project completion, the enterprise has a period of one (01) year to submit a VAT refund application in respect of VAT incurred during the investment phase.

III. Legal framework governing vat refunds for new investment projects

1. Guidance on vat refund procedures for new investment projects

Pursuant to Clause 2, Article 15 of the Value-Added Tax Law 2024, enterprises applying the deduction method of VAT calculation that have new investment projects currently in the investment phase are entitled to VAT refunds provided that all statutory conditions are satisfied. The basic procedure is as follows:

- Step 1: The enterprise calculates the total input VAT incurred during the investment phase that has not yet been credited.

- Step 2: The enterprise offsets the input VAT against VAT payable from its ongoing business operations (if any). If, after offsetting, the remaining uncredited input VAT is 300 million VND or more, the enterprise may apply for a refund.

- Step 3: The enterprise prepares the refund dossier in accordance with tax administration regulations under Article 28 of Circular No. 80/2021/TT-BTC, including the refund application, project legal documentation, invoices, supporting documents, and other relevant materials.

- Step 4: The enterprise submits the dossier to the competent tax authority. The tax authority will classify the application under either the “refund first - audit later” mechanism or the “audit first - refund later” mechanism for processing in accordance with applicable regulations.

In addition, enterprises should note that certain circumstances do not qualify for VAT refunds and instead allow only the carry-forward of uncredited VAT to subsequent tax periods, including:

• Failure to contribute charter capital in full as registered by the time the refund application is submitted;
• Conducting conditional business activities without satisfying or maintaining the required conditions;
• Investment projects involving natural resource or mineral extraction that fall within categories subject to refund restrictions under the law.

2. What are the responsibilities of a parent company when applying for VAT refunds relating to a subsidiary’s project?

Pursuant to Clause 2, Article 15 of the Value-Added Tax Law 2024, if an investment project owner establishes a new economic organization or assigns a branch or Project Management Unit to directly manage the project, the assigned entity may undertake VAT deduction and refund procedures in relation to the investment project.

In practice, if a parent company conducts VAT refund procedures on behalf of a subsidiary or dependent unit, it must ensure that:

• The investment project falls within a category eligible for VAT refunds;
• The project’s invoices and supporting documents are lawful and directly related to investment activities;
• VAT declaration, offsetting, and tax administration are conducted in accordance with applicable regulations;
• The parent company assumes responsibility for the accuracy and truthfulness of the VAT refund dossier submitted to the tax authority.

Furthermore, when the project is completed and enters the operational phase, any transfer of remaining uncredited VAT between the project-implementing entity and the operating entity must be implemented in compliance with tax regulations.

3. How are fabricating declarations made to obtain VAT refunds for new investment projects sanctioned?

Pursuant to Articles 12 and 16 of Decree No. 125/2020/ND-CP, fabricating declarations of VAT refund applications are subject to sanctions depending on the nature, severity, and consequences of the violation. 

Accordingly, if tax returns are inaccurate or incomplete but do not increase the VAT refund amount, the taxpayer may be subject to:

• Administrative fines ranging from 500,000 VND to 8,000,000 VND depending on the specific violation under Article 12 of Decree No. 125/2020/ND-CP;
• An obligation to submit amended tax returns and adjust any carried-forward VAT credits.

If fabricating declarations result in an excessive VAT refund, Article 16 of Decree No. 125/2020/ND-CP provides that the taxpayer may be subject to:

• A fine equal to 20% of the excess VAT refund amount;
• Repayment of the entire improperly refunded amount together with late-payment interest to the state budget.

In case a taxpayer fabricates refund dossiers, uses forged invoices, or relies on unlawful documents to unlawfully obtain VAT refunds, the matter may extend beyond administrative sanctions and lead to criminal liability under Article 200 of the Criminal Code 2015 (as amended and supplemented in 2017 and 2025) concerning the offense of tax evasion, depending on the nature of the conduct and the amount of damage caused.

In addition, according to Clause 5, Article 5 of Decree No. 125/2020/ND-CP, sanctions imposed on organizations are generally twice the amount applicable to individuals.

IV. Questions regarding vat refunds for new investment projects

1. Can refunded VAT amounts be treated as evidence in a criminal case and frozen if there are indications of fraud?

If an investigating authority determines that a refunded VAT amount is potentially connected to acts such as fabricating declarations, the use of fraudulent invoices, or the unlawful appropriation of State funds, the refunded amount may be regarded as property or evidentiary material related to a criminal case.

In such circumstances, competent procedural authorities are entitled to apply measures including account freezing, asset distraint, or temporary seizure of property to prevent asset dissipation, secure recovery of losses suffered by the state budget, and facilitate the investigation and adjudication process.

2. Will repayment of the entire improperly refunded tax amount help a defendant qualify for a suspended sentence at the appellate stage?

The voluntary repayment of the entire amount of tax that was improperly refunded constitutes the mitigating circumstance of “voluntarily remedying damage, compensating for losses, or rectifying consequences” under Point b, Clause 1, Article 51 of the Criminal Code 2015 (as amended and supplemented in 2017 and 2025). It is considered a significant factor when the Court assesses criminal liability.

At the appellate stage, if the defendant has fully remedied the consequences, presents additional mitigating circumstances, possesses a favorable personal background, and has been sentenced to a term of imprisonment not exceeding three years, the Court may consider granting a suspended sentence under Article 65 of the Criminal Code and the guidance provided in Resolution No. 02/2018/NQ-HĐTP.

However, it does not automatically entitle the defendant to a suspended sentence, as the Court must also consider the nature of the offense, the defendant’s role in the case, and the overall assessment of the Trial Panel.

3. Why can an enterprise still be prosecuted for misappropriating VAT refund funds even if it suffered actual losses due to being defrauded by a business partner?

In VAT refund cases, the fact that an enterprise was deceived by a business partner does not automatically exempt it from criminal liability. Investigative authorities will examine whether the enterprise properly fulfilled its obligations regarding the verification and management of invoices, supporting documents, and the legality of underlying transactions.

If the enterprise utilized unlawful invoices or supporting documents to claim VAT refunds, or acted with gross negligence resulting in the unlawful appropriation of VAT refund funds from that State budget, it may still be subject to criminal prosecution for offenses such as Tax Evasion under Article 200 or Illegal Trading in and Use of Invoices and State Budget Collection Documents under Article 203 of the Criminal Code 2015 (as amended and supplemented in 2017 and 2025).

During the adjudication process, the fact that the enterprise also suffered actual losses may be taken into consideration when evaluating the degree of fault and determining the applicability of mitigating circumstances under Article 51 of the Criminal Code.

4. How can bail or release pending investigation be requested for a director who is being detained in connection with a VAT refund case?

Pursuant to Article 121 of the Criminal Procedure Code 2015 (as amended and supplemented in 2025), a suspect under temporary detention may be considered for release under a guarantee measure as an alternative to detention if the relevant conditions concerning personal background, the seriousness of the alleged conduct, and the ability to ensure non-interference with the investigation are satisfied.

Family members, employers, or organizations may submit an application for guarantee together with a written undertaking and supporting documents demonstrating:

• A clear place of residence;
• Good personal character and background;
• A cooperative attitude during the investigation process; and
• Efforts to remedy consequences, such as repayment of improperly refunded tax amounts (if applicable).

In VAT refund cases, the early involvement of legal counsel to prepare supporting documents and demonstrate that the suspect poses no risk of absconding, destroying evidence, or reoffending is often a crucial factor influencing the authorities’ decision on whether to permit release pending investigation.

V. Why should you engage NPLaw to conduct a legal review of your vat refund application for a new investment project before submission?

A VAT refund application for a new investment project involves accounting documents, investment eligibility requirements, input invoices, and tax administration regulations. Consequently, even a minor error may result in tax reassessment, administrative sanctions, or an investigation into potential tax fraud.

Accordingly, conducting a comprehensive legal review prior to submission is a critical step in minimizing legal and financial risks.

With extensive experience in tax law and corporate dispute resolution, NPLaw assists clients by:

• Reviewing the validity and completeness of VAT refund application dossiers;
• Assessing potential legal and tax compliance risks;
• Examining invoices and supporting documentation;
• Developing appropriate explanations and response strategies before engagement with tax authorities;
• Assisting enterprises in protecting their legitimate rights and interests; and
• Minimizing the likelihood of tax disputes or legal liabilities arising during the refund process.

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