Are you an investor planning to set-up a company in Vietnam? In such case, understanding the legalities of establishing a company and understanding the local tax and accounting regulations is a crucial step to success. Complying with the Law does not only help investors reduce legal risks but also helps to save time and costs to maximise work efficiency and (hence) company profits.
Quite a few investors who ignored tax and accounting regulations faced penalties which could have been easily avoided. Thus, in this article, we shall summarize the most common tax and accounting issues to give a comprehensive picture for investors who wish to start a business in Vietnam.
1. Time of company establishment
Investors should avoid the establishment of a company at the end of the year, especially during December. Based on our observations, most companies established during this time of the year violate the deadline for submitting the fourth quarter and annual financial statements. According to regulations, the company established during this time still has to declare and submit periodic reports (monthly/quarterly/yearly) despite less business activity. Enterprises that do not comply with these regulations will face fines, which will depend on the circumstances of each violation. In addition, when the company is established in December, it still must pay the license fee for the current year.
2. Complying with tax obligations of the company
The obligation to pay taxes is one of the basic company obligation. Therefore, every year, Vietnamese companies must pay different taxes and fees, including:, license fees, corporate income tax on profits, or even declaring and paying value added tax. Depending on the sector of business, companies in Vietnam may also have to pay taxes such as export tax, import tax, and excise tax.
2.1 Timelines for declaration and paying taxes
- License fee: The company is obliged to pay the license fee once a year, regardless of whether the company is newly established or not.
To encourage business investment from foreign investors, the State issued ‘Decree No. 22/2020/ND-CP’ amending and supplementing several articles of ‘Decree 139/2016/ND-CP’ (effective from 25th February, 2020). Consequently, companies established in 2021 will be exempted from license fees for one year.
- Time for submitting license fees declarations: Businesses that are newly established including household businesses turned small and medium-sized enterprises shall submit license fees declarations directly to their tax authorities before January 30th of the following business establishment year.
2.2 Monthly/quarterly /yearly reports and taxes
On a monthly or quarterly basis, the company must submit a declaration, pay value-added tax (if any), and report on the use of invoices even if there is no activity.
Paying temporarily calculated corporate income tax (if any) is not required to submit a declaration. Enterprises balance the temporarily calculated corporate income tax rate by themselves and then at the end of the year, sum up revenue and expenses to finalize the total payable corporate income tax in that year (if any).
Annual financial statements should be submitted no later than 90 days after the end of the fiscal year.
3. Important procedures for tax declaration when setting up a company
3.1 Value-added tax declarations
Enterprises that do not generate input and output invoices will still have to submit a value-added tax (VAT) declaration form by the same deadline for tax declaration and payment.
3.2 Report on the use of invoices
Enterprises must declare report on use of invoices irrespective of whether the company’s value-added invoices were issued or not (if the company has carried out the procedures for notifying the issuance of value-added invoices).
3.3 Year-end financial statements
Enterprises should note that even though the company isn’t conducting any business activities, it still has to prepare and submit year-end financial statements for that year.
Therefore, the above should be paid attention to by investors when doing business in Vietnam. Investors should consider and comprehensively assess the benefits and difficulties while running a business and adjust the business plan accordingly to eliminate risks. In addition, compliance with tax and accounting regulations is also an important premise in building and structuring your business in the early days to ensure long-term sustainability. We hope the above information will help your businesses maximize profits, as well as control your costs well.
