Understanding Vietnam’s Tax Landscape: Essential Insights for Investors

Navigating the complex tax landscape in Vietnam is crucial for newcomers looking to invest or operate in the country. With evolving regulations and local laws that can significantly impact business finances, understanding the intricacies of taxation, accounting, and auditing is essential.

When entering a new market, it is essential for investors to grasp the local legal landscape. Among these various regulations, the frameworks surrounding taxation, accounting, and auditing are particularly significant, shaping business financial management. Companies often encounter serious compliance issues when they lack a clear understanding of these regulatory requirements.

The Importance of Compliance

In Vietnam, companies face legal consequences for failing to comply with tax laws and accounting standards within three to five years of their initial investment. These issues can lead to heavy penalties, often stemming from a lack of preparation, weak internal control systems, and insufficient knowledge of local tax laws. Understanding these nuances is vital to avoid tax-related risks and financial inaccuracies.

To prevent compliance issues, businesses should implement strategic measures that adhere to local accounting and auditing standards. This includes developing internal controls and adapting to other local regulations, minimizing the risk of tax violations and financial misconduct.

Establishing a Robust Internal Control System

Implementing a strong internal control (IC) system early on is crucial for investors. This not only ensures compliance but also aligns the subsidiary’s control structure with the group’s overall internal audit and governance framework. Here are some steps to consider:

Study Local Regulations

Investors should familiarize themselves with Vietnam’s unique tax, accounting, and legal frameworks. Presently, the Vietnamese Accounting Standards (VAS) govern accounting practices. The government plans to adopt International Financial Reporting Standards (IFRS) by 2026, making it essential for investors to understand the regulatory environment and prepare for these changes. Developing an accounting and internal control system that can adapt to evolving financial reporting standards is paramount.

Adjust Policies with Local Rules

If internal policies align with local laws, they can remain in place for consistency. However, conflicting policies must be modified to ensure that financial statements are accurate and compliant. Additionally, companies should strive to optimize their tax positions by deepening their understanding of local tax laws and their practical applications.

Challenges in Vietnam’s Rapidly Changing Tax Environment

Vietnam’s tax landscape is rapidly evolving. New tax policies slated for 2025 bring both challenges and opportunities. The complexity of tax law means that qualifying for incentives or exemptions often requires in-depth knowledge of eligibility criteria and required documentation. Not every business operation exactly matches the language of the law, creating grey areas in compliance.

To overcome these challenges, firms are recommended to:

• Stay Proactive: Regularly update and interpret new regulations.
• Consult Professional Advisors: Engage experts to assess how changes may affect specific business models.
• Enhance Internal Controls: Strengthen systems to minimize compliance and tax risks.

Case Study: VAT Regulation Update

One noteworthy regulatory change is Decree No. 181/2025/ND-CP, reflecting a shift in Vietnam’s tax environment aimed at enhancing corporate governance standards. This decree mandates that purchases of VND 5 million or more must be paid through non-cash methods to qualify for VAT deductions. Failure to provide valid proof of non-cash payment by the contractual due date will require companies to adjust their VAT deductions for that period.

To adapt, many enterprises are reviewing their internal financial controls, strengthening payment and accounts payable processes, and formalizing contingency protocols for delayed payments. These adjustments not only safeguard VAT rights but also bolster overall compliance readiness.

Key Tax Updates for 2025

As investors prepare for the upcoming year, three key tax updates in Vietnam warrant attention:

Corporate Income Tax (CIT)

A new regime has altered the corporate income tax rate, incentivizing small and medium-sized enterprises with rates of 15% or 17%, depending on specific conditions. However, CIT incentives for businesses in industrial parks are no longer available, while qualifying conditions for investment and expansion projects have become stricter.

Global Minimum Tax

A new directive on the implementation of the Global Minimum Tax (GMT) requires large multinational enterprises to pay a minimum of 15% CIT on profits in each jurisdiction. This directive is designed to enforce international standards and complicates compliance, making early data preparation and impact assessment crucial for businesses.

Value-Added Tax (VAT)

The 2024 Value-Added Law strengthens the non-cash payment requirement for purchases exceeding VND 5 million. Companies must adjust their input VAT deductions if they cannot provide payment proof by the deadline.

Final Thoughts

An in-depth understanding of local regulations and the establishment of an effective internal control system is vital for sustainable investment in Vietnam. Prioritizing compliance should be viewed not as an expense but as an investment in long-term stability, credibility, and growth. By preparing adequately for the tax landscape, businesses can navigate potential pitfalls and position themselves for success in this dynamic market.

Additional Resources and Support

For newcomers looking for assistance in navigating Vietnam’s complex tax and compliance landscape, engaging with professional services can be incredibly beneficial. Firms such as Dezan Shira & Associates offer specialized services to help investors successfully establish and operate their businesses in Vietnam.