Vietnam's tax authorities have confirmed that compensation payments not related to the sale of goods or services are not subject to VAT and do not require the issuance of VAT invoices under Official Letter No. 1831/CT-CS.

The guidance clarifies the VAT treatment of compensation payments that fall outside the scope of taxable supplies. Such payments, which are not connected to the delivery of goods or provision of services, are excluded from the VAT system entirely. This means recipients of these compensation amounts are not required to charge VAT on the payments received, and no VAT invoice needs to be issued in connection with such transactions.

The clarification provides certainty for businesses dealing with various forms of compensation arrangements, including damages, penalties, or other non-supply related payments. This guidance aligns with the principle that VAT applies to the supply of goods and services rather than pure financial flows or compensation arrangements that do not constitute a taxable supply under Vietnamese VAT law.