Total foreign direct investment surged over 40% in 2017 and is poised to expand further in the years ahead, with the government easing restrictions on foreign companies.
Investors have every reason to be confident in Vietnam's potential. But those operating in the country also need to be mindful of local accounting and tax realities. In TMF Group's 2018 Financial Complexity Index, which ranks the financial compliance complexity of over 90 jurisdictions globally, Vietnam ranked the second most complex market in Asia, just behind index leader China.
Factors to watch
What makes Vietnam's accounting and tax regime relatively complex? One of the main factors is that it is still a work in progress, with the authorities gradually bringing local regulations in line with international practice. The issues and requirements foreign investors should be conscious of include:
- Currency – in general the functional currency of any Vietnam-based company should be the Vietnamese dong (VND). Foreign functional currencies can be used when an enterprise transacts mainly in those currencies, but local tax authorities must be notified and these must still be converted to VND in all financial reports.
- Chart of accounts – the company chart of accounts (COA) must comply with local regulations. If the COA is designed according to group reporting requirements that differ from those applied locally a reconciliation will be necessary or the Vietnam company may be treated as non-compliant.
- Financial statements – some of the information required in local financial statements differs significantly from international accounting standards. In addition, auditing of these statements is compulsory for foreign-invested firms.
- Accounting documents and records – documents must be provided in the Vietnamese language (though bilingual vouchers are also an option), clearly approved by authorised parties and supported by original contracts, invoices and/or receipts where appropriate. While record formats are generally optional provided they contain the information required by regulators, vouchers and ledgers must be maintained in hard copy format by the company for at least 10 years.
Vietnam's tax regulations are in a near-constant state of change, frequently involve a large amount of paperwork and, due to ambiguity in the phrasing of laws in the local language, can be interpreted in different ways. Enterprises seeking to comply with local tax laws face various challenges, such as:
- VAT – rates range between 0 to 10% to full exemptions, and it can be difficult to identify the correct rate to apply for a given good or service
- Corporate income tax (CIT) – improperly recorded revenues and/or expenses registered without sufficient supporting documents – which in Vietnam must meet stringent requirements – as well as the gap between group and local-level tax policies can complicate the effort to establish the correct amount of taxable income
Signs of change
Failure to take these complications into account can impact an enterprise's operations and reputation, as well as its relationship with local authorities, who may sanction instances of non-compliance.
As Vietnam's integration with international economic and accounting bodies gains pace, we expect authorities to continue to enhance the tax and accounting framework for foreign investors. This process will create opportunities, but also shifts that need to be actively monitored and managed. This is why we recommend that foreign enterprises engage a partner on the ground with the experience and in-depth knowledge of local regulatory trends to help ensure they remain in line with standards – even as these standards change. Find out how your business can benefit from Vietnam's accounting and tax reforms on our on-demand webinar.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.