- Vietnam employs a unified set of accounting and bookkeeping standards known as Vietnamese Accounting Standards (VAS).
- Understanding regulations related to accounting and bookkeeping are important cost considerations for investors.
- Investors should prepare for the future as Vietnam looks to implement IFRS – the most common accounting language globally – by 2025.
For companies choosing to invest in foreign jurisdictions, taxes and other payments to governing authorities are among the most important cost considerations – issues that are of no exception in Vietnam. Understanding the regulation of accounting and bookkeeping can go a long way towards developing an efficient business strategy that minimizes costs and ensures compliance.
Vietnam employs a unified set of accounting and bookkeeping standards that guide how expenses and revenues of companies operating within its borders must be recorded. These generally accepted accounting principles (GAAP), known within the country as Vietnamese Accounting Standards (VAS), act as the primary set of guidelines on the manner in which accounts and books are prepared and recorded.
Framework for Vietnam Accounting Standards
Local and foreign-invested companies doing business in the country are required by law to comply with Vietnam Accounting Standard (VAS) when recording their financial transactions. Foreign companies may choose to manage two accounting records; one based on the VAS and another compiled specifically for the overseas head office.
In practice, many foreign companies maintain an accounting system according to VAS and only covert financial statements into the International Financial Reporting Standards (IFRS) on a quarterly basis for the foreign parent company's reference.
Any business operating in Vietnam, whether foreign-invested or local, which mainly conduct transactions (including sales, purchase, and provision of goods and services) with foreign currencies are permitted to choose a monetary unit in accounting and must notify relevant tax authorities of their choice.
Once a foreign currency is selected as an accounting currency unit, an enterprise cannot change it except for special circumstances, such as when there are significant alterations in the company's transactions. It is also important to be aware that besides preparing a financial statement in the selected foreign currency, an enterprise must convert the statement into Vietnamese dong before publishing and submitting it to appropriate regulatory authorities.
In a nutshell, the VAS requires that accounting records:
- Are in the Vietnamese language, or can be combined with a commonly used foreign language;
- Use Vietnamese Dong (VND) as the accounting currency, but foreign-invested enterprises (FIEs) are allowed to select a foreign currency as their accounting currency;
- Comply with the Vietnam chart of accounts; and
- Include numerous reports specified by VAS regulations, printed on a monthly basis and signed by the General Director and affixed with the company seal.
Accounting period timeline
An accounting period in Vietnam is generally determined according to the calendar year, i.e. January 1 to December 31. However, a 12-month period beginning the first day of each quarter, e.g. April 1 to March 31 of the following year; July 1 to June 30 of the following year; or October 1 to September 30 of the following year, can also be adopted after registering with the Tax Department.
Compliance is crucial
Companies are advised to double-check their accounting system, taking care to spot possible VAS non-compliance issues. There have been recent reports that some provincial tax authorities cite VAS non-compliance as a basis for collecting additional tax and recovering paid VAT refunds. In addition, tax authorities can penalize companies for VAS non-compliance through the disallowance of input VAT credits and withdrawal of CIT incentives.
All foreign-invested entities are required to have their annual financial statements audited by an independent auditing firm. Statutory audits in Vietnam are performed in accordance with the Vietnam Standards on Auditing.
Foreign companies need to be aware of a new Decree 05/2019/ND-CP on internal audit in Vietnam that went into effect on April 1. The new decree applies to state-owned authorities, public service organizations as well as private listed companies to implement and adopt internal audit (IA) practices.
Organizations are required to have a Chief Accountant. Annual financial statements must be approved by the chief accountant and the legal representative.
Audited financial statements and tax finalization filing must be done within 90 days from the end of each financial year. After fulfilling these obligations and giving notice to local managing tax offices at least seven working days in advance, foreign investors may remit profits abroad.
Move towards IFRS by 2025 – plan ahead
The Vietnamese government is further moving towards adopting the International Financial Reporting Standards (IFRS), which will replace VAS. The government hopes to implement IFRS by 2025, which has been a demand from listed companies and FDI firms. The move is significant as this is in line with international best practices, enhancing transparency and effectiveness in corporate governance.
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.