Vietnam Audit

Before venturing into a business in Vietnam, it’s in your best interests to understand the rules guiding business audits in the country. Understanding audit rules helps you meet legal requirements and keeps your enterprise financially healthy. Here’s a comprehensive guide for foreign-owned companies to ensure Vietnam audit compliance.

What is a Financial Audit? 

A finance audit is the evaluation and examination of an organization’s financial statements. However, the evaluation and examination must be objective to ensure an accurate and fair representation of the financial records and transactions of the organization. 

In Vietnam, nearly all foreign-owned enterprises go through an annual audit of their financial statements, which is the first step to meeting the annual compliance requirements. The Vietnam audit features an examination of the organization’s income statement, cash flow statement, balance sheet, and more. 

Annual Finalization and Reporting

In Vietnam, the calendar year, January 1 to December 31, generally determines the accounting period. However, a company’s accounting period can be adapted to 12-month periods (starting from the day first day of each quarter) after registering with the Tax Department and the Business Registration Office. 

Essentially, foreign investors and businesses operating in Vietnam must prepare and file annual financial audits and statements by the last day of the third month after the annual accounting period has closed. 

According to Vietnamese law, your business must file the annual financial statements with the following offices:

  • The Ministry of Planning and Investment (Business Registration Office) 
  • The General Statistics Office; 
  • Tax Office at the provincial or city level; and  
  • Municipal Department Finance.  

Auditing and Compliance Requirements

Vietnam generally requires businesses operating in export processing zones (EPZs) or industrial zones (IZs) to file their financial statements with the management board of their EPZ or IZ. 

On the other hand, foreign-owned companies operating in special fields need to submit special reports to departments overseeing their fields. 

Annual Audit compliance for foreign-owned enterprises (FOEs)

Vietnam requires foreign-owned enterprises to audit their annual financial statements. Besides being a fulfillment of an obligation to tax authorities, audits help companies identify unnecessary tax payments qualified for a refund and improve their accounting system. Below, we explain the complete steps for annual audit compliance:

Step 1: Prepare annual audit report 

Vietnam requires all foreign-owned organizations to prepare financial audit reports annually in accordance with Vietnamese Accounting Standards (VAS) although it has introduced the Vietnam financial reporting standards (VFRS) to replace it in the future. Also, Vietnamese law requires an independent audit, meaning that companies must use an external auditor. 

Deadline: Audited reports should be submitted to relevant government departments within 90 days from the end of the fiscal year. 

Step 2: Finalization of Corporate Income Tax (CIT)

Vietnamese law requires foreign-owned enterprises to conduct CIT finalization at the end of every year. In Vietnam, the standard tax year is one calendar year. Therefore, if an enterprise utilizes a different year, it must report this to the local tax agency. 

Currently, CIT revenue sources include income arising from production, service, and trading. Enterprises must ensure that all requisite income from these revenue streams is included in finalization statements. 

Deadline: Finalization reports should be submitted to the tax authorities by the last day of the third month after the annual accounting period has closed. 

Step 3: Finalization of Personal Income Tax (PIT)  

Vietnam mandates foreign-owned enterprises to conduct the finalization of all PIT of their employees, including deductions from salaries throughout the fiscal year. According to Vietnamese law, enterprises must complete PIT finalization for deducted tax in advance of a consolidation or a merger. 

Additionally, they must provide employees with a voucher for their PIT finalization at the end of the year. 

Deadline: Like CIT finalization, PIT finalization reports must be submitted by the last day of the third month after the annual accounting period has closed. 

Step 4: Finalization of Social Insurance  

Vietnam’s labor contracts mandate a social insurance scheme for all Vietnamese and foreign employees. Therefore, foreign-owned enterprises must integrate their employees into this scheme and prepare a finalization report at the end of the year. 

Deadline: Social insurance finalization must be submitted at the same time as CIT and PIT finalization.

Step 5: Profit Remittance 

Vietnamese law allows foreign-owned enterprises to remit profits to offshore accounts after tax finalization or withdrawal of investment projects from Vietnam. However, they must have fulfilled all financial obligations to Vietnam. 

For foreign-owned companies still in operation within Vietnam they can remit profits offshore if they have not accumulated losses. 

Deadline: After tax finalization, the company must notify the relevant tax office of any plan to remit profits at least seven working days before the remittance. 

Annual compliance for representative offices (RO)

ROs are one of the simplest and fastest routes for establishing a legal entity in Vietnam. If you consider the reporting requirements of foreign-owned enterprises too complex, ROs offer a more simplified process.

Annual reports 

The annual reports of ROs should include:

  • Basic and contact information;
  • Human resource report (policies on salary, insurance, bonuses, and other benefits; and
  • Activities report

Advantages of a Successful Audit 

  • It enhances reliability and credibility with stakeholders
  • It allows companies to detect weaknesses in their internal controls and financial management systems
  • It helps to boost operational efficiency and reduce the risk of financial mismanagement or fraud 
  • It helps to optimize tax planning and produce tax savings
  • It ensures compliance with regulations, preventing penalties

Key Considerations for a Successful Audit

  • Don’t rush the process; allow plenty of time for the audit
  • Get familiar with VAS
  • Leverage digital tools
  • Audit annual financial statements before transferring profits
  • Engage reputable and experienced audit firms
  • Be aware of the latest changes in accounting and tax regulations

Penalties for non-compliance

  • Per Vietnam’s New Penal Code of 2018, non-compliance can lead to criminal prosecution. 
  • If the tax authorities find discrepancies in audited financial statements, a 20 percent tax will be imposed on the amount that is under-declared.
  • A 0.03 percent daily interest rate for late tax payments.
  • Disallowance of withdrawal of CIT incentives and input VAT credits

Retention of Documentation

Foreign-owned enterprises must retain a variety of documents generated during the accounting and bookkeeping process after the annual finalization of financial statements. Vietnam audit laws require document retention for different periods depending on the nature of the documentation. 

Generally, businesses must retain documents used in management and operation for five years. They must retain accounting data, financial statements, accounting data, and independent audit reports for ten years. Lastly, documents related to security, economics, and the national defense of Vietnam must be retained indefinitely. 

How can Premia TNC help?

Premia TNC is uniquely positioned to help you avoid the complexities of the VAS/VFRS by engaging a personal Chartered Accountant who understands your business and handles auditing tasks such as filing reports, optimizing taxes, and keeping your books tamed. Contact us today and leave the bookkeeping to us! 

Can ROs be used to generate profits?

ROs are forbidden from direct profit-generating activities. They are limited to market research, gathering information on regulations, and developing trade contacts.

What are the VFRS?

The VFRS are inspired by the International Financial Reporting Standards (IFRS). Vietnam’s Ministry of Finance adopted it in 2020, saying it will bring benefits not only to the macro economy and enterprises. 

Are VAS and VFRS the same?

The VAS is the extant financial reporting system, while VFRS is the new process that is gradually replacing the former. Vietnamese enterprises are switching from the VAS to the VFRS in preparing their financial statements.