Invoice Trading and Fictitious Transaction Risk at Vietnamese Companies: Tax and Criminal Risk, and Countermeasures, Explained by Counsel

A detailed explanation by Vietnamese counsel of the risks associated with invoice trading and fictitious transactions at Vietnamese companies, and the tax and criminal liability involved. Drawing on practical disputes that frequently arise locally, this article clarifies measures to prevent unlawful risk and key points for building a compliance framework. NEXORA LAWFIRM has extensive experience handling tax audits and criminal-risk matters, and works with accountants and tax advisors to support the building of comprehensive risk-avoidance frameworks — supporting Vietnam operations from both preventive legal measures and crisis response.

01 - The Reality of Fictitious Transactions and Expense Recognition at Vietnamese Companies

In Vietnam, the creation of fictitious transactions and the improper recognition of expenses represent a serious problem in corporate tax compliance. In particular, "invoice trading" — the improper buying and selling of receipts and invoices — remains widespread.

1.1. What is invoice trading?

Invoice trading refers to the practice of creating a transaction with no underlying substance (a fictitious transaction) and using the invoice generated from that transaction to record an expense in a company's books.

1.2. Common reasons for invoice trading

Invoice trading and the creation of fictitious transactions generally arise from the following three patterns.

① Deliberate action to reduce the tax burden

Cases where a company deliberately creates fictitious transactions to inflate expenses, thereby reducing taxable income and lowering the amount of tax payable.

② Unavoidable rationalization of expenses

Cases where a fictitious transaction is created to justify, on the books, an expenditure that could not otherwise be booked as a legitimate expense (for example:
expenditure for which no invoice could be obtained,
expenditure exceeding the statutorily permitted limit, or
improper spending such as bribes).

③ Fraud committed by an employee

Cases where an employee deceives the company in order to fraudulently obtain money by disguising it as a fictitious expense.

Example: Company XXX entrusted a task to Employee A. In fact, A either performed the work personally on the side, or had an acquaintance or family member carry it out. A then purchased a fictitious service invoice from Company YYY and submitted it to Company XXX in order to obtain reimbursement from the company.

02 - Risks and Legal Consequences of Involvement in Fictitious Transactions

Vietnam has stepped up its crackdown on sham transactions and improper use of invoices. In particular, recent developments have made clear the serious risks a company can face once a violation is discovered.

2.1. Heightened monitoring by the tax authorities (Official Letter No. 1798)

In May 2023, Vietnam's General Department of Taxation issued Official Letter No. 1798, instructing local tax departments to thoroughly investigate invoices connected with the 524 companies listed in Appendix 1 (the "524 Companies").

The instruction covers the following:

Where a company under a local tax department's jurisdiction has used invoices issued by any of the 524 Companies,
VAT deduction
VAT refund
expense recognition for corporate income tax purposes
legitimizing floating goods or smuggled goods
the company is required to explain whether such invoices were used for the above purposes, among others.

✅ In other words, this creates a framework in which not only the invoice issuer (seller) but also the user (buyer) may be held responsible.

2.2. Risks where a company cannot adequately account for its invoice use

Where a company's explanation is inadequate and its invoice use is found to be in violation, the following legal and tax risks may arise.

① Denial of VAT deduction

VAT deductions based on the problematic invoices are disallowed.
An obligation arises to pay back amounts previously deducted.

② Denial of deductibility for corporate income tax

Expenses based on the problematic invoices become non-deductible.
As a result, an obligation arises to pay back corporate income tax (CIT).

③ Late-payment interest on back-payments

Late-payment interest must be paid on the back-paid VAT and CIT amounts,
calculated from the date the liability accrued through to the date of full payment.

④ Administrative penalties for tax violations

Administrative penalties (fines) may be imposed for filing errors or late payment.

⑤ Possible criminal liability

Where the relevant conditions are met, criminal liability may also be pursued under Article 203 of the 2015 Penal Code ("Illegal trading of invoices").

03 - Where Responsibility Lies for Use of High-Risk Invoices

Amid heightened scrutiny by the Vietnamese tax authorities, an important question is who bears responsibility where a company has used invoices issued by a high-risk company.

3.1. What are the 524 high-tax-risk companies?
The tax authorities have identified and published a list of 524 companies said to present high tax risk and signs of improper invoice use (the "524 Companies").
Companies that have used invoices connected with any of these 524 Companies are required to explain the genuineness of the underlying transactions.

3.2. Three typical scenarios seen in practice

Our firm has received numerous inquiries on this issue from companies. Among them, the following scenarios are typical.

【Scenario 1】A company that dealt entirely in good faith, but was nonetheless harmed
The company and its employees genuinely engaged in the transaction and conducted business in good faith.
However, where the counterparty (one of the 524 Companies)
issued the invoice during a period when it was invalid, or
continued transacting even after already having received a warning from the tax authorities,
→ the company may suffer harm from invalidation of the invoice even though it acted in good faith.

✅ In practice, problematic companies often deliberately mix legitimate and fictitious transactions together, and the party caught up in it is frequently unaware — this point requires particular caution.

【Scenario 2】A case where the company itself directed the invoice trading
Cases where the company's management or executives deliberately directed the creation of fictitious transactions or invoice trading.
In this case,
the party who gave the instruction
and the party who carried it out (the responsible employee)
may both face criminal liability (e.g., for illegal invoice trading).

【Scenario 3】Fraud committed by an employee for personal gain
Cases where the company did not direct the conduct, but an employee improperly used invoices for personal gain.
In this case, the company bears the tax risk (back-payments, penalties, etc.), but
the company may pursue civil liability and damages against the employee responsible for the misconduct.

04 - Lessons for Avoiding Risk Going Forward

Where a company becomes involved in invoice trading, not only the individual who carried it out (the employee) but the company itself may bear legal liability. For this reason, preventive risk measures taken in advance are extremely important. Below, we set out the lessons companies and employees alike should draw in order to avoid future trouble.

4.1. Measures companies should take
① Thoroughly instill compliance with tax law and invoice regulations
Raise compliance awareness regarding tax law and invoice management, starting with senior management.
Prohibit invoice trading of any kind or for any purpose, and communicate this clearly throughout the company.
② Employee education and awareness-raising
Ensure all employees understand the serious risks (tax and criminal) of unlawful invoice use or trading.
We recommend regular in-house training and compliance education.
④ Establish internal rules and operating procedures
Set out the following clearly in internal company regulations:
An obligation to verify the eligibility of suppliers and service providers
A prohibition on dealing with "high tax-risk companies" or "companies with a history of improper invoice use"
A procedure for checking a supplier's compliance history (e.g., invoice-issuance history)
Rules on liability and disciplinary action for violations
Explicitly treat invoice-related violations as breaches of labor regulations, with defined disciplinary consequences
⑤ Strengthen reporting and record-keeping
Require that reports on purchasing and contracts be submitted in written, formal report form (discourage reporting via chat or verbally).
Maintain thorough records and preserve evidence in preparation for any future audit or investigation.

4.2. Measures employees should take
Properly recognize the risks associated with invoices and business partners within their own area of responsibility.
If there is any suspicion of involvement in a transaction with a high-risk company,
calmly re-verify the details of the transaction,
gather evidence demonstrating the substance of the transaction, and
promptly coordinate with a supervisor or the compliance department.

✅ Rather than trying to evade responsibility, it is important to take the stance of cooperating with the company to properly fulfill the duty of accountability.

As discussed in this article, the risks of invoice trading and fictitious transactions at Vietnamese companies can have a serious impact on business operations. Even where neither the company nor its employees acted with bad intent,

fraud on the part of the invoice issuer
gaps in internal compliance

can still result in tax back-payments, administrative penalties, and even criminal liability.

To prevent such risks before they arise,

careful vetting in selecting business partners
proper management of invoices
building and operating internal rules and controls
compliance education for employees

are essential.