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2019 Increases to Vietnamese Minimum Monthly Wage

 

The accounting, tax and compliance function in Vietnam is one which presents significant challenges in Vietnam, and more so to foreign invested businesses. Six specific challenges that investors face in respect of these, are detailed below, looking at the issues, risks and strategies to minimise.

 

1. Understanding the Obligations of Companies

The accounting, tax and statutory compliance obligations of a company in Vietnam are time consuming and complicated, especially in comparison to more developed countries. The requirements are ever changing, with a significant number of lodgements required on a monthly, quarterly, half-yearly and annual basis.

Understanding and staying on top of the compliance obligations specific to an enterprise is a challenge, and one that requires a focus on a written compliance framework or plan for each enterprise. However, this is a process not commonly followed in Vietnam, resulting in companies regularly only meeting part of their ongoing obligations (the obligations that they are made aware of) and exposing themselves to penalties for the balance.

 

2. Review of Work

The concept of “self-review” in Vietnam looms large – where one individual is responsible for the accounting, tax or compliance work in an organisation, without further review or oversight from a qualified individual. This is a common issue in small firms, which simply can’t justify the headcount for multiple roles, but surprisingly equally arises in larger firms where too much trust is placed in a single key individual.

Ideally there would be multiple layers of preparation and review in an organisation for all tasks, ensuring required tasks are done correctly and completely, with any errors identified and rectified. Where staffing constraints don’t permit an appropriate structure, then external providers can become part of the corporate infrastructure.

The financial penalties for non-compliance or inadvertent errors can be significant, particularly when they are identified by authorities many years in the future, as penalties can be back dated for up to 10 years.

 

3. Communication

Vietnamese cultural adaptations in an office can often result in ineffective communication, particular with regards to self-reporting errors or omissions with a company’s accounting, tax or compliance obligations. Staff that become aware that something has not been completed correctly can often choose not to communicate this to their superiors, and seek to correct in the background instead. This is sometimes due to a fear of retribution, and other times related to saving face.

Nonetheless, a transparent environment which encourages and supports communication at all levels provides the best opportunity for all problems and errors to be identified and reported whenever identified in a company. This allows the company to effectively address issues, and put plans in place correct underlying accounting, tax and compliance obligations.

 

4. International Reporting

Vietnamese enterprises are required to use Vietnamese Accounting Standards (“VAS”) as their base accounting system. VAS is very prescriptive (a fixed chart of accounts, for example), with limited flexibility in report formats and documentation processes. It can be described as a tax-based, cash-adjusted accrual accounting regime, built around a full-absorption costing reporting environment. Accounting software must follow VAS guidelines and be VAS approved for compliance purposes, often limiting the use of international group software in Vietnam.

As a result, Vietnamese accountants are educated in specific ways in how they must undertake accounting and tax matters in Vietnam, and this education does not always readily convert to accounting and tax practices that follow international norms. International investors therefore face challenges in obtaining easily understandable international reporting – either basic management accounts or full IFRS/US GAAP reporting – and consolidating this information into their international operations further complicates.

Having skilled staff that have international understandings and expectations are critical to the process of reporting at an international level for foreign investors.

 

5. Costs

Accounting, tax and compliance is costly in Vietnam. Small companies bare this cost disproportionally to large businesses, as the compliance obligations for foreign investors does not proportionally from small to large. The lack of feasibly available resources within small companies also compounds the issue.

Investors starting businesses in Vietnam do need to take into account the staff and general resource costs for accounting, tax and compliance matters in their planning and recruitment. Corrective activities are more expensive than appropriate staffing and resource allocation in the first place, and district considerably in Vietnam, and even more so for foreign investors with a lesser understanding of the business environment and obligations.

 

6. The role of the Chief Accountant

Every company in Vietnam requires the appointment of a Chief Accountant. This role covers many tasks that are not specifically accounting related (more aligned to company secretarial matters), but the primary role is to be the “head of the accounting unit” within a Vietnamese company. This includes signing off on each accounting document (vouchers, ledgers, etc), and being responsible for the accounting and tax compliance matters for the company.

Notwithstanding the above, companies often cut corners with the appointment, taking unnecessary risks with experience and requirements. The Law on Accounting allows for the appointment of a temporary Chief Accountant for up to 12 months for companies, with many assuming they can appoint anyone during this period – however, this not only exposes the company to significant risks when an inexperienced individual undertakes the role, but unless the temporary Chief Accountant has appropriate experience and education (akin to what a Chief Accountant needs), then such appointment is likely in breach of the law.

 

Investors are encouraged to seek out professional advice and assistance in developing their market entry strategy, and to ensure they have robust processes to review their ongoing operations and requirements. It is also advisable to consider the outsourcing options for all or part of the accounting, tax and compliance obligations of companies in Vietnam so that appropriate controls and protections are in place for investors.

 



For further information contact:

 

Matthew Lourey, Managing Partner

email: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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