Audit and Compliance in Vietnam: A Guide for Foreign Investors
The Accounting Law governs the principles for accounting, audits, and organizational structure, for businesses to stay compliant in Vietnam.
The tax year in Vietnam is determined according to the calendar year, and a Vietnamese-based auditing company must conduct the audit. The financial reports should then be submitted to the local tax authority, the Ministry of Finance, and the statistics office 90 days before the end of the fiscal year.
Auditing and compliance requirements
Investors should be aware that the audit and compliance requirements are different for foreign-owned enterprises (FOE) and representative offices (RO) in Vietnam.
Annual compliance for foreign-owned companies
FOEs are obligated to provide an annual audit report and the finalization of corporate and personal income taxation.
The statutory audit requirements are as follows:
- Statement of income;
- Statement of financial position (profit and loss);
- Statement of changes in equity, if any; and
- Balance sheets.
Within 90 days after the end of the fiscal year, FOEs need to submit the audited reports to three government agencies:
- Provincial Department of Planning and Investment (DPI) or the Provincial Level Export Processing and Industrial Zone Department in the case of FOEs based in investment zones (IZs) or export processing zones (EPZs);
- Provincial level tax departments; and
- Provincial-level statistical offices.
The financial period in Vietnam usually coincides with the calendar year. FOEs can choose from four fiscal periods with the 12-month period beginning on the first day of each quarter after registering with the Tax Department.
The financial reports should then be submitted to the local tax authority, the Ministry of Finance, and the statistics office before the end of the fiscal year.
The four fiscal periods are:
- January 1 – December 31;
- April 1 – March 31;
- July 1 – June 30; or
- October 1 – September 30.
Annual compliance for representative offices
Representative offices are one of the simplest and fastest ways to establish a legal entity in Vietnam. Their reporting requirements are also more simplified compared to FOEs. ROs are forbidden from directly conducting profit-generating activities and are limited to market research, developing trade contacts, and gathering information on regulations and laws.
In addition to the Accounting Law, local and international companies are obligated to adhere to the Vietnamese Accounting Standards (VAS), which has been developed by the Vietnamese Ministry of Finance, when documenting financial transactions. The VAS provides the guidelines for bookkeeping, financial reporting, and financial statement preparations.
Foreign investors should be aware of the unique fundamental characteristics of VAS to fully comprehend compliance requirements and make informed investment decisions. Vietnam’s government currently has 26 VAS accounting standards based on IFRS.
To provide guidance for local and foreign enterprises in Vietnam on these standards, the Ministry of Finance (MoF) recently issued Circulars, No. 200/2014/TT-BTC and No. 202/2014/TT-BTC, which enhance the comparability and transparency of corporate financial statements and bring the two systems closer.
The government aims to replace VAS and adopt the International Financial Reporting Standards (IFRS) by 2025 through a draft IFRS roadmap, published in 2019. The roadmap divides the IFRS implementation into three stages:
Stage 1 (2019-2021): The MoF makes necessary preparations for the implementation of the roadmap, such as the publication of the Vietnamese translation of IFRS standards, training and the preparation of guidelines for IFRS implementation. Companies that will adopt IFRS from 2022 onwards will receive special support.
Stage 2 (2022-2025): The MoF selects certain pilot companies, in particular state-owned enterprises, listed companies, and (large) non-listed companies, to implement IFRS in practice. Foreign companies can adopt IFRS for their individual financial statements on a voluntary basis.
Stage 3 (from 2025): IFRS will be mandatory for the consolidated accounts of all state-owned companies, listed companies, and (large) non-listed companies. All other companies can adopt IFRS for their individual financial statements on a voluntary basis.
Enterprises under foreign ownership must have their financial statements audited by an independent audit firm operating in Vietnam. Such statuary audits are performed in accordance with VAS and every organization is required to have a Chief Accountant, as annual financial statements must be approved by the chief accountant and the legal representative.
The accounting records should be maintained in the Vietnamese language although this can be combined with another commonly used foreign language, such as English.
Additionally, the Vietnamese Dong must be used as the accounting currency, however, entities that receive and pay with foreign currency can select that said foreign currency in their accounting records and financial statements.
For ROs, the annual reports must include:
- Basic information – contact information, such as office address, telephone numbers, and primary bank contacts. Investors should note that the address should match to that written in the RO license.
- Human resource report – ROs must document their policies with regard to salaries, bonuses, insurance, and other benefits. The personal information and position of every employee should also be included.
- Activities report – ROs must document their activities for the preceding year, which includes information such as market research activities, advertising activities, participation in trade fairs, and the promotion of service agreements, among others.
Penalties for non-compliance
Under the government’s New Penal Code, which was issued in 2018, businesses that fail to adhere to the compliance laws can now be held criminally responsible.
If the tax authorities find discrepancies in the financial reports, after an audit, a 20 percent tax will be imposed on the amount that is under-declared. There is also a 0.03 percent daily interest rate for the late payment of tax.
In addition, tax authorities can penalize companies for VAS non-compliance through the disallowance of input VAT credits and withdrawal of CIT incentives.
ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, in addition to Jakarta, in Indonesia. We also have partner firms in Malaysia, the Philippines, and Thailand as well as our practices in China and India. Please contact us at email@example.com or visit our website at www.dezshira.com.
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