Understanding Functional Currency in Vietnam’s Accounting System

January 9, 2026 Posted by Vietnam Briefing Written by Vu Nguyen Hanh Reading Time: 3 minutes

Vietnam’s accounting framework allows enterprises to adopt a functional currency that best reflects their underlying business operations. Circular No. 99/2025/TT-BTC provides detailed guidance on how businesses can determine, change, and translate their functional currency, offering greater flexibility while maintaining compliance with Vietnamese accounting and reporting requirements.

This approach is particularly relevant for foreign invested enterprises (FDIs), import–export companies, and logistics firms whose primary transactions are conducted in foreign currencies.

What is a functional currency?

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Under Circular 99, enterprises may use either the Vietnamese dong (VND) or a foreign currency as their functional currency for bookkeeping purposes. The functional currency must reflect the economic environment in which the enterprise primarily operates and generates cash flows.

By allowing the use of a non-VND functional currency, the regulation enables businesses to present financial information more accurately in their principal operating currency, while still complying with Vietnam’s statutory reporting obligations.

Determining the functional currency

An enterprise’s functional currency must align with the transactions, events, and conditions that are most relevant to its operations. Circular 99 sets out the following key criteria:

The currency is regularly used for payments, setting selling prices of goods or services, and incurring costs; or
The currency is used to raise financial resources, such as through debt or equity issuance, or is regularly received from business operations and retained as reserves.

Enterprises must assess these factors holistically to determine the most appropriate functional currency for bookkeeping.

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Changing the functional currency

Once established, a functional currency should remain consistent unless there is a fundamental change in the enterprise’s operational or managerial environment that significantly alters the underlying transactions and conditions.

If such a change occurs:

The functional currency may only be changed at the beginning of a new accounting year; and
The enterprise must apply specific translation and disclosure rules when making the transition.

Key Requirements When Changing Functional Currency
Item	Key requirement
Translation of opening balances	All account balances and the statement of financial position must be translated into the new functional currency using the average transfer exchange rate (mean of buying and selling rates) of the commercial bank most frequently used, applied as of the change date.
Comparative information	Prior-period figures in the profit and loss and cash flow statements must be translated using the average transfer exchange rate for the relevant period, based on the same commercial bank.
Disclosure requirements	Enterprises must explain the reason for the change and describe its impact on the financial statements in the notes.

Financial reporting when using a non-VND functional currency

Vietnamese regulations require that financial statements submitted to competent authorities or published externally be presented in VND, unless otherwise stipulated by law.

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Accordingly:

Enterprises using a foreign functional currency for internal accounting must translate their financial statements into VND for statutory purposes.
Where an independent audit is required, the audited financial statements must also be presented in VND.

Translating financial statements into VND

Translation principles

When translating financial statements from a foreign functional currency into VND, enterprises must follow the principles prescribed in Circular 99, applying consistent exchange rate methodologies across financial statement items.

Category	Translation method
Assets and liabilities	Translated at the average transfer exchange rate quoted by the commercial bank most frequently used by the enterprise at period-end.
Equity items	Owner’s capital, capital surplus, other capital, and bond conversion options translated at the actual exchange rate on the contribution date.
Asset remeasurement differences	Translated at the actual exchange rate on the revaluation date.
Retained earnings	Undistributed post-tax profits and funds translated according to corresponding P&L items; remaining retained earnings translated at the recorded book exchange rate.
Profit and loss and cash flow items	Translated at the actual exchange rate at the transaction date. Where appropriate, the average exchange rate for the period may be used if it approximates actual rates within the State Bank of Vietnam’s spot rate band.

Accounting for exchange rate differences

Exchange rate differences arising from the translation of financial statements into VND must be recognized under “Exchange rate differences” within the equity section of the statement of financial position.

These differences do not directly affect profit or loss but reflect currency translation impacts on the enterprise’s financial position.

Disclosure requirements

Enhancing internal audit and risk management

Enterprises are required to disclose in the notes to the financial statements:

The impact of translating financial statements from a foreign currency into VND; and
Any resulting differences or changes that materially affect the financial statements.

Clear disclosure ensures transparency and allows stakeholders to properly interpret the enterprise’s financial performance and position.

Takeaway

Vietnam’s Circular 99 allows enterprises, especially businesses, to choose a functional currency that best reflects their operating environment. This flexibility improves the accuracy and relevance of financial reporting while still requiring translation into VND and clear disclosure for statutory and stakeholder purposes.

Enterprises should reassess their functional currency, plan any changes at the start of a fiscal year, and implement robust processes for applying exchange rates, translating, and disclosing.

For further information on Vietnam’s new accounting regime, please read: Circular 99: What Vietnam’s New Accounting Regime Means for IFRS Alignment

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