Why is tax risk higher during year-end audits?

Because tax authorities cross-check accounting records, invoices, and bank data in detail.

What are common tax risk mistakes for SMEs?

Late filings, invalid VAT invoices, cash payments above limits, and missing documentation.

How can SMEs reduce tax risk before audits?

By reconciling accounts, reviewing invoices, and correcting errors early.

Do internal controls help reduce tax risk?

Yes. Strong approval and review processes prevent errors and lower tax risk.

Tax Risks to Avoid During Year-End Audits in Vietnam

KEY TAKEAWAYS

Tax risk peaks during year-end audits.
Small errors in CIT and VAT filings can trigger reassessments and penalties.

Documentation and deadlines drive tax risk.
Missing invoices, cash payments, or late filings significantly increase tax risk.

Early reviews reduce tax risk.
Tax health checks and reconciliations help detect issues before audits begin.

Introduction

Year-end audits require Vietnamese SMEs to finalize Corporate Income Tax (CIT) and VAT filings, making this season one of high tax risk. Auditors will cross-check each entry against accounting books, invoices, and contracts. Even small mistakes (like a missing invoice) can trigger reassessment and penalties, raising the company’s tax risk profile. In recent years, Vietnam has tightened tax regulations – for example, a new VAT law requires non-cash payment for purchases above VND 5 million, and the 2025 CIT Law lowers tax rates but imposes stricter conditions. These changes increase scrutiny on reported numbers, making compliance more challenging. By understanding common audit pitfalls now, SMEs can reduce costly corrections later.

Tax Filing and Reporting Errors

A major source of tax risk is in CIT filings. SMEs often make mistakes like underestimating profits or misreporting deductions, which can prompt tax adjustments and penalties . For example, claiming a personal or unsupported expense will be rejected by tax authorities. Likewise, Vietnam strictly enforces a cash limit: any purchase above VND 5 million paid in cash invalidates the VAT credit . If SMEs still pay cash, they must reduce their deductible VAT, creating a significant tax exposure. They must finalize and file the annual CIT return by March 31 (within 90 days after year-end). Failing to do so elevates the company’s tax risk profile.

Timely filing of all forms is critical. Missing a CIT or VAT deadline incurs heavy fines and interest. Maintaining a compliance calendar helps ensure monthly or quarterly VAT returns and the annual CIT finalization are submitted on time. Even if no tax is due, filing by the deadline completely eliminates that tax risk. SMEs should also verify figures: for example, income recorded in the ledger should match VAT and CIT declarations. Reconciliations before the deadline can catch errors early.

VAT-specific errors can also create problems. For instance, using invoices from “ghost” suppliers (entities not actually operating) invalidates input VAT credits . To avoid this, businesses must verify suppliers’ tax codes via the tax authority’s portal. Another frequent VAT trap is invoice timing. Issuing a VAT invoice too early or too late – for example, invoicing when goods are delivered instead of when payment is received – is flagged by data cross-checks. Such timing discrepancies lead to additional VAT assessments and even CIT adjustments.

Underreported revenue is another critical tax risk. Some SMEs unintentionally omit small sales, discounts, or foreign income from their returns. Vietnam’s tax agencies cross-check reported revenue with bank deposits and e-invoice records, so unexplained discrepancies trigger audits. Conducting a pre-audit tax health check can help catch missing income. For instance, reconciling bank deposits to declared revenue ensures all taxable income is captured . Detecting and declaring any omitted income before the official audit avoids large back taxes and penalties.

SMEs with related-party transactions (e.g. with parent companies or affiliates) face added tax risk in transfer pricing. The tax law requires that inter-company sales, services, or loans follow arm’s-length pricing, supported by documentation. If pricing deviates from market norms (or if the company has no Local File), the tax office can retroactively adjust profits during an audit. For example, audits often find missing or incorrect transfer-pricing documentation. To mitigate this, SMEs should maintain clear records: benchmark studies, contracts, and tax filings should show how related-party transactions comply with market conditions. Proper documentation allows companies to defend their prices and reduce this specific tax risk.

Documentation and Recordkeeping Deficiencies

Poor documentation is a root cause of many audit findings and spikes tax risk. Missing or incomplete records trigger problems immediately. For example, Vietnamese law requires valid invoices (with tax codes, contract references, etc.) to support deductions. If an expense lacks a corresponding invoice or contract, the auditor will disallow it. Vietnam also mandates that all accounting books and financial statements be kept in Vietnamese. Failing to maintain proper Vietnamese-language ledgers or source documents can trigger fines. Each missing piece of paperwork becomes a red flag.

To manage this risk, SMEs should organize their records meticulously. Implement a strict “three-way match” control: every payment must be supported by an invoice and an acceptance or delivery note. Keep detailed contract files and approval memos to justify large expenses . With electronic invoicing mandated, ensure every sale and purchase is documented by a timely e-invoice. Common pitfalls include typos (wrong tax IDs or amounts) or failing to transmit the invoice properly. Such errors can invalidate VAT credits and heighten tax risk. Performing an internal review of invoices and accounting entries before the audit helps catch and correct these issues.

Compliance with Accounting Standards (VAS and IFRS)

Adhering to Vietnamese accounting standards helps control tax risk. Currently, all companies in Vietnam must prepare audited financial statements following Vietnamese Accounting Standards (VAS). Deviating from VAS (for example, by prematurely applying an IFRS treatment) can distort taxable profits. For instance, recognizing revenue earlier under IFRS without the proper VAS support may lead to underreporting income. Vietnam plans to adopt IFRS for listed companies starting in 2026. Anticipating these changes can help identify tax risk exposures early. In practice, a company that maintains records satisfying both VAS and IFRS principles will have a cleaner audit and lower tax risk.

Internal Controls and Governance

Weak internal controls amplify audit risk and create tax risk. When a company operates without formal policies or approval procedures, simple errors can become major issues. For example, authorizing large payments without review or failing to reconcile accounts may let unauthorized expenses slip in. These lapses make it easier for unapproved costs to occur unnoticed. SMEs should establish clear financial governance – for instance, an internal finance manual that defines who approves expenses and how payments are documented. Requiring dual sign-offs on high-value transactions or having a separate review of tax forms can prevent many mistakes.

Another important control is regular reconciliation. Many audits reveal discrepancies between financial statements, tax filings, and e-invoice logs . To prevent this, perform periodic checks: match ledger revenue against VAT returns and bank deposits, and compare reported expenses with claimed deductions. Assign separate roles – e.g. one person enters data while another reviews the tax filings – to create internal cross-checks. By catching mismatches internally, an SME avoids serious adjustments and lowers its overall tax risk.

Preventive Strategies and Best Practices

Proactively addressing tax risks before year-end is the best strategy. Key practices include:

Tax Health Checks: Conduct an internal review of your tax position well before the audit. This means reconciling key accounts (bank statements, sales ledger, VAT filings) and ensuring all returns are complete . A tax health check can catch issues like unclaimed VAT or omitted income early. Many experts recommend doing this annually. Correcting errors now – even amending filings – greatly reduces potential tax risk compared to dealing with findings during an inspection.
Stay Current on Regulations: Vietnam’s tax laws change frequently. The recent 2024 VAT law and 2025 CIT law introduce stricter e-invoicing and non-cash rules, new tax rates, and updated incentives . SMEs should regularly review guidance from the Ministry of Finance or General Department of Taxation. Awareness of new rules (for instance, changes to deductible expenses or invoicing formats) eliminates compliance tax risks that arise from simply being out-of-date.
Keep Detailed Documentation: Never assume a cost is deductible or a VAT credit allowable without paperwork. Save contracts, delivery notes, invoices, payment proofs, and written approvals. Require purchase orders for large expenses. Use accounting software with audit logs. When every tax return entry can be traced to source documents, auditors gain confidence and hidden tax issues are minimized.
Meet All Filing Deadlines: Maintain a calendar of tax obligations. Late or missing tax filings are easy to make but can cost a lot. Vietnam imposes significant fines (often in the millions of VND) for late VAT or CIT returns. Ensure that monthly/quarterly VAT and annual CIT filings (including transfer pricing annexes or tax withholding reconciliations) are submitted on time. Even if no tax is due, file the declarations by the deadline to completely eliminate that tax risk.
Coordinate Across Departments: Ensure sales, operations, and finance teams communicate closely. Agree on when a sale is considered complete so invoices go out correctly, and confirm that all revenue events are invoiced. Inconsistent processes can cause revenue to slip through the cracks – a hidden tax risk. Developing consistent procedures across departments prevents many common errors, closing significant sources of tax risk.
Strengthen Internal Controls: Formalize approval workflows and financial reviews. Require multiple sign-offs on large transactions, or have an independent person review final tax figures before submission. Use checklists to ensure all documents are in order. When employees know data will be scrutinized (even internally), they tend to be more careful, further reducing tax risk.

Conclusion: Building Long-Term Compliance

Year-end audits in Vietnam can be demanding, but they also present an opportunity to demonstrate sound financial management. The key is continuous diligence. Businesses that maintain accurate books, comprehensive documentation, and robust internal controls keep their tax risk low and build trust with regulators. For example, properly adhering to VAS (and anticipating upcoming IFRS standards) ensures that revenues and costs are reported correctly and consistently.

In practice, companies that regularly update their processes – through annual tax health checks, staff training, or policy reviews – face far fewer surprises from auditors. A clean audit report and timely tax payments create a positive reputation and support sustainable growth. Companies that consistently show compliance demonstrate lower tax risk profiles to authorities. Ultimately, avoiding tax risk is not about hiding or delaying; it is about transparency and precision in tax affairs. By reviewing your accounting processes now and tightening controls, you can turn audit season into a confirmation of your company’s financial health rather than a crisis.