The procedure for disposing of unsold inventory is a challenge faced by almost every export and processing business when goods are damaged due to natural biochemical changes, become outdated, technically obsolete, or no longer usable. Therefore, this procedure must be carried out correctly, with proper legal documentation, for the costs to be accepted by the tax authorities and for input VAT not to be subject to retroactive collection. Based on direct consultations with numerous textile and garment export processing businesses, MAN – Master Accountant Network has observed that even a single mistake – such as missing customs notification, lack of images/videos, or discrepancies in data between documents – can lead to the complete disallowance of expenses, retroactive tax collection, and administrative penalties.
This article systematizes the entire procedure for destroying inventory according to current legal documents applicable from 2026, helping accountants and business owners understand the three groups of obligations that need to be processed simultaneously, the step-by-step process with customs authorities, the minimum documentation required, and specific considerations for export processing businesses.
Why do businesses need to understand the procedures for disposing of excess inventory?
In reality, many businesses still consider the destruction of excess inventory a simple internal operation: prepare a report, sign it, and then destroy it. This approach carries significant risks, especially for businesses that import raw materials and components under processing or export production schemes, which are exempt from import duties and subject to customs supervision.
When carrying out the procedure for destroying inventory, businesses must simultaneously address the following three groups of obligations:
| Content | Conclude | Required conditions |
| Customs procedures | Prior notification is required before destruction. | Send a notification via the System using Form No. 22a, Appendix II; wait for a response regarding whether or not direct supervision is required before cancellation. |
| Corporate income tax expense | Included in deductible expenses. | For goods owned by the business; maintain complete records of destruction at the business. |
| Input VAT | Deductible, no downward adjustment required. | There is documentation proving that the loss was not compensated. |
If any group of obligations is omitted, businesses can suffer consequences: from retroactive collection of import taxes and VAT on imports, to the entire cost of goods sold being disallowed as deductible expenses when settling corporate income tax. This is also why many processing and exporting businesses should proactively seek information. full package tax accounting services Right from the planning stage, the goal is to ensure that all three groups of customs obligations – corporate income tax, value-added tax – are processed synchronously, without omitting any step.
Legal basis for regulations on the procedures for destroying surplus inventory.
To ensure that the inventory disposal procedure is carried out correctly and has legal validity when explaining to tax and customs authorities, businesses need to adhere to the following documents:
- Law on Corporate Income Tax No. 67/2025/QH15
- Points i7 and j of Clause 2, Article 9 of Decree 320/2025/ND-CP
- Law on Value Added Tax No. 48/2024/QH15
- Clause 1, Article 23 of Decree 181/2025/ND-CP
- Articles 55, 64 (point d, clause 3), 71, and 75 of Circular 38/2015/TT-BTC (amended and supplemented by Circular 39/2018/TT-BTC and Circular 121/2025/TT-BTC)
- Official document No. 18294/CHQ-GSQL dated June 30, 2026, from the Customs Department.
- Article 4 of Decree 123/2020/ND-CP (amended by Decree 70/2025/ND-CP)
- Environmental Protection Law of 2020 and Decree 08/2022/ND-CP
- Circular 48/2019/TT-BTC and Circular 99/2025/TT-BTC
This is the legal basis that must be cited when preparing documentation for destruction, to avoid the tax authorities rejecting expenses based on documents that have expired.
Three groups of mandatory obligations when carrying out inventory destruction.
In essence, the procedure for destroying excess inventory is not a single procedure but rather an intersection of three areas of government administration:
- Customs (for goods of imported origin);
- Corporate income tax (deductible expenses)
- And value-added tax (input tax deduction).
Businesses need to establish internal processes so that all three groups of obligations are handled in parallel, not separately, because the documentation for one group often serves as evidence for another.
The destruction process is in accordance with customs regulations.
For imported raw materials and components under the processing and export scheme that are exempt from import duties and subject to customs supervision, destruction without prior notice will be considered an unauthorized change in the intended use of the goods, leading to the recovery of import duties, VAT at the import stage, and administrative penalties. Therefore, the procedure for destroying inventory for this group of goods must be carried out in full, following five steps.
Step 1: Develop a disposal plan.
Businesses need to develop a detailed plan including:
- List of goods, quantity;
- Corresponding import declaration form;
- Related subcontracting agreements;
- The reason for disposal, the method of disposal, the location, and the chosen disposal unit will be determined.
Step 2: Notify the customs authorities before destruction.
This is a crucial step in the inventory destruction procedure for imported goods. Businesses submit a destruction notification through the System using Form No. 22a, Appendix II. If the System is not functioning or experiences technical issues, businesses submit a paper copy using Form No. 18b/THHH/GSQL, Appendix V.
Step 3: Wait for a response from the customs authorities.
The customs authority will respond regarding whether or not they will assign officials to directly supervise the destruction process. Businesses are strictly prohibited from proceeding with the destruction until they receive this response.
Step 4: Carry out the disposal according to the announced plan.
The destruction process must be documented with full signatures from all relevant parties; the entire process must also be filmed and photographed. This is considered the most important evidence that tax and customs authorities will review during future inspections. Note: businesses are not allowed to burn or bury waste within their factory premises; they must hire a licensed environmental service provider and retain a copy of that permit.
Step 5: Reflect this in the final settlement report.
After destruction, businesses must update the quantity of destroyed raw materials in the raw materials ledger and submit a final settlement report to the customs authority.
Furthermore, an important deadline to note is that, no later than 30 days from the date the processing contract ends or expires, the enterprise must complete the disposal of surplus raw materials, scrap, and waste products. If the enterprise chooses to sell scrap and waste products domestically instead of destroying them, it is exempt from import tax but must declare and pay VAT, special consumption tax, and environmental protection tax (if applicable).
Documents required for the procedures to dispose of excess inventory.
One point to note is that Decree 320/2025/ND-CP does not list a specific set of documents, but only requires businesses to retain and provide complete documentation during inspections. In other words, the burden of proving the validity of the inventory destruction procedure rests with the business itself. This is also the item that the service providers are required to provide. full accounting service MAN typically assists businesses in building and maintaining records right from the disposal planning stage, ensuring complete and consistent documentation is available for audits. Below is the minimum documentation required to build and maintain:
| File | Note |
| Inventory count report | Item code, quantity, cost price, date of receipt, inventory age |
| Quality assessment report or proposal for destruction | Most importantly, state the cause in the correct legal language: damage due to natural biochemical changes, outdated fashion, obsolescence, or loss of usability. |
| Decision to establish the Destruction Council and Decision to approve the destruction | Proof of approval authority; including a detailed list and values. |
| The destruction record bears the signatures of all members of the Council. | Specify the time, location, method, quantity destroyed, and recovery value (if any). |
| Images and videos of the entire destruction process. | Evidence is the most important document in the garment industry, valued by tax and customs authorities. |
| Warehouse release form, inventory card, detailed materials ledger | Compare the quantity with the destruction record. |
| Waste disposal contract, handover record, weighing certificate, invoice, payment authorization. | Cashless payment is mandatory for amounts of 5 million VND or more. |
| Document confirming that insurance compensation is not provided; destruction notice and customs response. | The reimbursed portion must be excluded from deductible expenses beforehand; customs records are kept together to prove the validity of the destruction. |
Having all eight types of documents prepared is not only essential for the inventory destruction procedure, but also serves as a basis for protecting the business during post-customs clearance inspections or tax audits later on.
Conditions for inventory disposal costs to be deductible when calculating corporate income tax.
One of the key points that export processing businesses need to pay special attention to when carrying out inventory disposal procedures is correctly identifying ownership of the goods being destroyed, as this directly determines whether or not the costs will be recognized.
In cases where the raw materials are owned by the foreign outsourcing client.
For goods received for processing, which are tracked off-balance sheet, businesses are not allowed to record the cost of goods destroyed as an expense, as these are not assets owned by the business. Only the portion of the destruction service costs actually incurred by the business (hiring a processing unit, transportation, etc.) is deductible.
In the case where the goods are owned by the business.
For raw materials purchased by the enterprise itself, or finished or semi-finished products owned by the enterprise (for export production or self-supplied raw materials), the enterprise is allowed to fully record the cost of goods sold as deductible expenses, as stipulated in the regulations. DPoint i7, Clause 2, Article 9 of Decree 320/2025/ND-CP.
Furthermore, if the processing contract stipulates that the client reimburses the processing company for the disposal costs, this recovery must be invoiced and recorded as revenue or other income; it cannot be omitted when declaring taxes.
The scope of deductible expenses has been expanded.
Compared to previous regulations, point i7, clause 2, Article 9 of Decree 320/2025/ND-CP directly recognizes the group of goods that are outdated in fashion, technically obsolete, obsolete, or no longer usable – a group of reasons previously excluded under Circular 96/2015. The deductible expenses in the current inventory destruction procedure include both the cost of goods destroyed (minus the provision already set aside) and expenses directly related to the destruction process.
Should input VAT be adjusted downwards when destroying inventory?
This is a question that many accountants are concerned about when carrying out inventory disposal procedures. Clause 1, Article 23 of Decree 181/2025/ND-CP:
Businesses are entitled to deduct the entire input VAT, including the input VAT on goods that were lost and not compensated. This means that there is no need to adjust the previously deducted VAT downwards, provided that there is sufficient documentation to prove the loss and not to compensate.
Two additional points should be noted:
- Since imported raw materials are exempt from import duties, no input VAT is incurred at the import stage, therefore no adjustment is necessary.
- The VAT on expenses incurred during the disposal process, such as transportation costs and waste treatment costs, is still deductible like any other legitimate expense.
Regarding invoices, the general principle is No invoice will be issued upon disposal. goods. However, if the destruction process results in the recovery and sale of scrap materials (e.g., fabric scraps, cotton yarn in the textile industry), the business is required to issue invoices and declare output VAT for this recovered value.
Common mistakes made when carrying out inventory disposal procedures.
Through practical consulting experience, MAN has identified several recurring errors that put businesses at risk when tax and customs authorities inspect the documentation for the destruction of surplus inventory:
- Skip the customs notification step: This is the most serious offense for goods imported under the processing and export production scheme, and can be considered as unauthorized changes to the intended use, leading to the retroactive collection of import duties and VAT at the import stage.
- Lack of images and videos of the destruction process: A written record without photographic evidence is insufficient. Authorities always question whether goods (especially clothing) were actually destroyed to the point of being unusable, i.e., cut, torn, or shredded, or whether they were already put on the market for consumption.
- Discrepancies in figures between different types of documents: The destruction notice, destruction record, weighing certificate from the processing unit, inventory ledger, and settlement report must match perfectly. This is the point most frequently questioned by customs authorities during post-clearance inspections.
- Recording expenses in the wrong accounting period: The cost of destruction must be recorded on the actual date the destruction record is made, not on the date the damage is discovered. If a business wants to reflect the decrease in inventory value earlier, it needs to do so through a mechanism for creating a provision for inventory devaluation. Circular 48/2019/TT-BTCIt is not possible to directly record the destruction cost as an expense before the destruction actually takes place.
Regarding accounting, when carrying out the procedure for destroying inventory, the enterprise records:
- Debit account 2294 (for the portion already provisioned) or Debit account 632 (for the remaining portion);
- Accounts 152, 155, and 156 are respectively.
During this period of regulatory transition, many businesses are choosing to outsource accounting services It is advisable to have specialized, experienced units like MAN – Master Accountant Network – conduct a thorough review of account mapping and accounting for disposal costs, instead of letting internal departments handle it themselves, which carries the risk of errors.
Conclude
It is clear that the procedure for destroying unsold inventory is not simply an internal accounting operation, but a close combination of customs compliance, standardization of expense documentation, and protection of VAT deduction rights. To minimize the risk of expense disallowance, tax arrears, or penalties, businesses, especially those in the textile and garment and export processing industries, need to take precautions.
If your business is preparing to dispose of a large batch of inventory, or is still unsure about cost classification, determining ownership of processed goods, consulting with an experienced accounting and auditing firm beforehand will help your business avoid unnecessary risks during tax settlement and post-customs clearance inspections.
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Responsible for production and professional content review by: Mr. Le Hoang Tuyen – Founder & CEO of MAN – Master Accountant NetworkHe is a CPA Vietnam auditor with over 30 years of in-depth experience in accounting, auditing, taxation, and corporate legal consulting.
Frequently Asked Questions about Inventory Disposal Procedures
Is it mandatory to notify customs authorities when destroying unsold inventory?
Yes, for goods imported under the processing and export production scheme that are subject to customs supervision, businesses must submit a notification using Form No. 22a, Appendix II, through the System and wait for a response before proceeding with destruction.
Are the costs of disposing of unsold inventory deductible when calculating corporate income tax?
Yes, if the goods are owned by the enterprise and the enterprise maintains complete records of destruction as stipulated in point i7, clause 2, Article 9 of Decree 320/2025/ND-CP. In the case of goods owned by the foreign processing contractor, only the actual cost of destruction services is deductible.
Will the input VAT on destroyed goods be adjusted downwards?
No, according to Clause 1, Article 23 of Decree 181/2025/ND-CP, businesses are entitled to deduct the full input VAT of goods that are lost without compensation, provided they have complete supporting documentation.
What are the minimum required documents for the procedure of destroying excess inventory?
The required documents must include at least eight items: Inventory report, quality assessment report or proposal, decision to establish a committee and approve destruction, destruction report, images/videos of the destruction process, warehouse release form, waste disposal contract with payment documents, and confirmation that insurance compensation is not provided.
