Vietnam Business Accounting & Taxation: Principles of Taxation, Problems & Solutions, and Accounting Department Setup

Vietnam’s evolving tax system and rapid tech adoption create significant challenges for accounting and tax compliance. Despite gradual improvements, navigating these changes requires local expertise and up-to-date legal knowledge.

Many companies are rethinking their approach to taxation compliance, prioritizing better service providers, technology, and resources to improve tax reporting. Successful business operations in Vietnam depend on skilled tax professionals to avoid audits, fines, and common tax infractions.

For foreign investors, staying informed about taxation policy changes is crucial to avoiding legal and financial risks. Indirect taxes, such as sales and use taxes, can vary significantly and be complex. To mitigate these challenges, experts recommend automating tax compliance or outsourcing these functions.

Looking for Accounting & Taxation Operational Assistance? Find Out About InCorp Vietnam’s Corporate Tax & Compliance Outsourcing Services

Company’s Obligations in Business Accounting & Taxation

Compliance with taxation, statutory accounting, and taxation reporting in Vietnam has grown increasingly time-consuming and complex compared to many other countries. This complexity is largely due to constantly changing regulations and the need for frequent reporting—monthly, quarterly, half-yearly, and annually.

Accounting & taxation compliance obligations in Vietnam are specific to each enterprise, necessitating a tailored compliance framework for every business. This poses significant challenges for companies striving to ensure full adherence to the regulations.

Accounting & taxation compliance obligations are specific to each enterprise, requiring a tailored compliance framework for every business. This creates significant challenges for companies in ensuring full adherence to the regulations.

Unfortunately, many enterprises struggle to keep up with these demanding processes, leading to lapses in compliance. Consequently, non-compliant companies often face penalties imposed by the Vietnamese government.

Read More: An Essential Guide of Taxation & Compliance Deadlines in Vietnam

Miscommunication between Levels in a Company’s Accounting Department

Many business owners recognize that Vietnam has a deeply rooted business culture, characterized by a strong emphasis on harmony, relationship-building before business dealings, and a preference for thorough discussions before decisions are made.

However, this cultural approach can sometimes lead to communication challenges, such as neglecting compliance obligations or errors in self-reporting. Employees may avoid disclosing mistakes to management due to fear of reprimand or a desire to save face. Promoting transparency in the workplace is essential for overcoming these challenges and fostering a more effective communication environment.

Read More: How to Succeed in Business Culture in Vietnam: Negotiation and Gifts Giving

Reviewing Work: Principles of Taxation and Accounting Practices

In Vietnam, many companies handle their taxation and accounting tasks through self-review. This means that once the person responsible completes the necessary compliance work, there’s often no further review or validation by another qualified individual or professional.

This practice is especially common among small enterprises and presents a significant challenge in maintaining compliance. In larger companies, too much trust or responsibility is often placed on a single individual, increasing the risk of errors. To mitigate these risks, implementing multiple levels of review for taxation and accounting work within an organization is crucial for identifying and correcting mistakes promptly.

Related Articles:

• Your Comprehensive Guide to Taxation Incentives in Vietnam
• Requirements for Your Accounting Department: What does a Chief Accountant Do?

High Costs in Business Accounting & Taxation Compliance

Accounting, taxation, and compliance in Vietnam can be expensive. For small businesses, these costs can be disproportionately high compared to larger enterprises, posing significant challenges, especially for foreign business owners.

Beyond these expenses, small businesses must also factor in additional costs such as hiring, recruitment, training, and corrective actions, further increasing the financial strain.

Reporting Internationally: Taxation Problems and Solutions

Vietnamese Accounting Standards (VAS) serve as the mandatory foundation for businesses operating in Vietnam. However, VAS offers limited flexibility in documentation processes and reporting formats.

Additionally, any accounting software used by Vietnamese businesses must adhere to VAS guidelines and receive approval, making it challenging to implement international accounting software in Vietnam. Consequently, most Vietnamese accountants have limited exposure to international accounting practices.

This lack of familiarity with global accounting standards poses significant challenges for foreign investors, particularly those managing businesses with international operations.

Different Rates of Taxation on Corporate Income in Vietnam: What the Accounting Department Needs to Know

In Vietnam, corporate taxes, particularly for foreign companies, offer various incentives depending on specific projects or business sectors. The detailed breakdown below will help you navigate and take advantage of these opportunities.

Standard Rates

Corporate Income Tax (CIT) is levied at the national level, with an average rate of 20%. However, CIT rates can vary based on specific conditions and the location of the project. Below is an overview of CIT rates for different types of enterprises:

Non-Standard Rates

Enterprises	CIT Rates
Oil & Gas Industry	32% to 50%
Extraction of Mineral Resources (Gemstones, Gold, and Silver)	40% or 50%

As of April 2021, Decree No. 52/2021/ND-CP was issued to support industries directly affected by COVID-19. Businesses operating in Vietnam are subject to CIT and are also taxed on their global income. In such cases, no taxation incentives apply.

Preferential Rates

Reduced CIT rates of 10%, 15%, and 17% are available for companies that meet specific criteria. These preferential rates apply to firms involved in significant investment projects or those engaged in research and development (R&D) activities.

Calculation of Taxable Profit

Taxable profit is calculated as the difference between total revenue (from both foreign and domestic sources) and allowable deductible expenses. As a foreign investor, you must file your CIT annually.

Local Income Taxes

Vietnam does not impose state, local, or provincial income taxes.

Common Infringements and Penalties Based on Industry & Principles of Taxation

The most common taxation violations are categorized into groups based on the type of tax, making it easier for you to navigate and understand.

1. Failure to Submit Tax Declarations

• One Day Late: A warning is issued if the tax declaration is submitted more than one day late but with a valid reason.
• Up to 30 Days Late: Fines range from VND 2,000,000 to VND 5,000,000.
• 31 to 60 Days Late: Fines increase to VND 5,000,000 to VND 8,000,000.

2. Failure to Submit Temporary Tax Declarations

• Companies that underpay their quarterly CIT are subject to late payment interest, calculated at 0.03% per day on the underpaid amount from the due date until payment.

3. Failure to Submit Audited Financial Statements

• Businesses must settle their CIT obligations within three months after the fiscal year ends. Late submissions lead to administrative penalties and required rectifications.

4. Tax Evasion

• Basic Fine: Taxpayers who evade taxes face fines equal to the amount of tax evaded, with possible mitigating circumstances.
• Aggravated Circumstances: Fines can increase to 1.5, 2, 2.5, or 3 times the amount of tax evaded, depending on the number and severity of aggravating factors.

5. False Declarations

• Minor Errors: Fines range from VND 500,000 to VND 2,500,000 for false or incomplete disclosures that do not affect tax liability.
• Significant Errors: Fines of VND 5,000,000 to VND 8,000,000 apply for errors that impact tax obligations.

6. Transfer Pricing

• Transfer pricing involves manipulating prices between related entities in different tax jurisdictions to minimize tax liabilities. Vietnam’s tax authorities closely monitor these transactions and impose penalties for violations.

7. Value-Added Tax (VAT) Infringements

• Similar to CIT, late or incorrect VAT declarations can result in fines ranging from VND 2,000,000 to VND 8,000,000.

8. Misbilling and Invoicing Errors

• Invoice Timing Errors: Fines range from VND 3,000,000 to VND 8,000,000.
• Failure to Issue Invoices: A fine of VND 10,000,000 to VND 20,000,000 is imposed for failing to issue invoices for legally provided goods or services.

9. Operating in the Wrong Business Sector

• If a business operates in an incorrect sector or location, as stated in its registration, fines range from VND 1,000,000 to VND 5,000,000.

Tips on Setting Up Your Accounting & Taxes When Expanding

To avoid tax infringements and fines, businesses should hire skilled tax specialists to manage and advise on their tax obligations. Competent tax professionals are trained to detect errors and discrepancies in tax forms, reducing the likelihood of costly mistakes. Additionally, they can help identify and claim all eligible tax credits and deductions, potentially saving you money. A well-planned tax strategy tailored to your financial situation is another benefit tax specialists provide.

InCorp Vietnam encourages all foreign investors, especially those new to Vietnam’s complex tax system, to seek professional tax and accounting assistance. This not only saves time and unnecessary costs but also ensures compliance, paving the way for a successful market entry and business operations in Vietnam.

Read Related: Expert Consulting Tax Services in Vietnam: Third-Party Audit & Advisory Solutions

Maintaining an annual audit report, which includes records like personal and commercial taxes, balance sheets, and profit/loss statements, can be daunting. These records must comply with the latest government regulations, often requiring a dedicated department and additional investments. A highly recommended solution to address these challenges is outsourcing your tax and accounting needs.

Benefits of Outsourcing:

• Time Savings: Outsourcing allows you to focus on core business activities, such as daily operations and client acquisition.
• Cost Reduction: It cuts down on overhead costs associated with hiring, training, and purchasing necessary hardware and software.
• Access to Expertise: You gain access to experienced professionals without the need for extensive HR efforts.
• Scalability: Outsourcing offers the flexibility to scale operations efficiently, with resources readily available for any accounting role.
• Risk Minimization: Outsourcing minimizes the risk of miscalculations or delays, ensuring accurate and timely financial management.

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