Vietnam’s Key Compliance Requirements
Nov. 29 – There are a number of legally-mandated requirements with which FIEs in Vietnam must comply, failure of which will jeopardize the ability of the FIE to continue operating in Vietnam. These procedures and requirements may be different from what the FIEs are accustomed to in their home countries. Investors should therefore be sure to familiarize themselves with these requirements as well as to seek professional advice.
Accounting and Bookkeeping
Local and foreign-invested companies doing business in the country are required by law to comply with Vietnam Accounting Standards (VAS) when recording their financial transactions.
Foreign companies may choose to manage two accounting records; one based on the VAS and another compiled specifically for the overseas head office. In practice, many foreign companies maintain an accounting system according to VAS and only convert financial statements into IFRS on a quarterly basis for foreign parent company reference.
In a nutshell, the VAS requires that accounting records:
- Are in the Vietnamese language
- Use VND as the accounting currency
- Comply with the Vietnam chart of accounts
- Include numerous reports specified by VAS regulations, printed on a monthly basis, signed by the General Director, and affixed with the company seal
Foreign companies wanting to use another currency for their financial records need to submit an application to the local managing tax office. This accounting currency unit must be one that is mainly used for the foreign company’s banking transactions, services and selling price quotations. The same foreign currency can also be used to account for revenues, employee salaries and payment of material costs.
An accounting period in Vietnam is generally determined according to the calendar year, i.e. January 1 to December 31. However, 12 month periods beginning the first day of each quarter, e.g. April 1 to March 31 of the following year; July 1 to June 30 of the following year; or October 1 to September 30 of the following year, can also be adopted after registering with the Tax Department.
Companies are advised to double check their accounting system, taking care to spot possible VAS non-compliance issues. There have been recent reports that some provincial tax authorities cite VAS non-compliance as a basis for collecting additional tax and recovering paid VAT refunds. In addition, tax authorities can penalize companies for VAS non-compliance through the disallowance of input VAT credits and withdrawal of CIT incentives.
Prior to transferring profits, foreign companies must fulfil certain annual compliance requirements, involving a statutory audit, audited financial statements and tax finalization filings. These procedures are not only required by law, but are also a good opportunity to conduct an internal financial health check.
All foreign-invested entities are required to have their annual financial statements audited by an independent auditing firm. Statutory audits in Vietnam are performed in accordance with the Vietnam Standards on Auditing.
Audited financial statements and tax finalization filing must be done within 90 days from the end of each financial year. After fulfilling these obligations and giving notice to local managing tax offices at least seven working days in advance, foreign investors may remit profits abroad.
Annual compliance for ROs is different from that for other foreign-invested entities. An RO is required to report on its activities to a local department of trade prior to the last working day of January of the following year.
A taxpayer who pays tax later than the deadline is to pay the outstanding tax amount plus a fine equal to 0.05 percent of the tax amount for each day the payment is late. Taxpayers that make incorrect declarations, thereby reducing taxes payable or increasing refundable tax amounts are to pay the full amount of the under-declared tax or return the excess refund, and will also pay a fine equal to 10 percent of the under-declared or excess refunded tax amounts together with a fine for late payment of the tax. A taxpayer that commits acts of tax evasion or tax fraud is liable to pay the full amount of tax and a fine between one and three times the evaded tax amount.
This article was taken from Asia Briefing’s guide “An Introduction to Doing Business in Vietnam.” This 32-page report touches on everything you need to know about doing business in Vietnam, and is now available as a complimentary PDF download on the Asia Briefing Bookstore!
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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