In the context of current changes in the tax law and tax inspection tightening measures, businesses are in great need of reviewing their tax compliance. According to Hoang Thuy Duong, partner and head of Tax at KPMG in Vietnam, businesses are beginning to stabilize and restore production, hence preparing for the tax examination and inspection activities in 2022-2023.
Along with tax issues that existed prior to COVID-19, some new issues emerged and needed fresh eyes. Particularly, the Vietnam tax law will be revised in 2022 to comply with international obligations, which will suit the public's needs.
Why do enterprises need tax audits?
Vietnamese businesses are experiencing many financial difficulties due to the Covid-19 pandemic, while tax inspections, tax penalties, and tax collection are constant. Given that non-compliance with tax regulations can negatively affect a business' budget or cash flow, it is imperative that businesses are aware of the key tax risks and have appropriate action plans.
Moreover, tax audits also help publicize and transparent the financial statements of foreign-invested enterprises. Simultaneously, through proper tax inspection, the government can detect and prevent the violation of the law. Clause 1, Article 15 of Decree 17/2012/ND-CP guiding the Law on Independent Audit stipulates that annual financial statements of foreign-invested firms must be inspected by auditing firms or branches of foreign auditing firms in Vietnam.
On the businesses' side, independent assessment of financial statements does not only help firms meet and comply with the government's requirements but also identify risks and efficiencies in the utilization of resources. What's more, tax inspection will create a greater trust for customers including tax authorities, banks, partners, and investors, among others. For example, with a fully accepted financial statement, businesses can be classified as trustworthy customers. Therefore, they can enjoy better credit services from banks with reduced interest rates.
A brief instruction on submitting tax audits
According to the Circular 200/2014/TT-BTC on December 22, 2014, accounting units that are private enterprises and partnerships must submit annual financial statements within 30 days from the end of the yearly accounting period. Besides, the time limit for submitting annual account statements for other accounting units, including FDI enterprises is 90 days at the latest (Clause 2, Article 109 of Circular 200).
Thus, conforming to the above regulation, FDI enterprises in Vietnam must prepare to provide a financial report within the determined period. Furthermore, it is noteworthy that the financial statements must be audited under the law.
A financial agency with FDI must submit financial statements to the Financial agencies (Department of Finance) together with other authorities such as Tax agencies, Statistics agencies, Superior enterprises, Business registration agencies of the province or municipality where the enterprise registers its head office (Article 110 Circular 200). Likewise, foreign-invested businesses with headquarters located in industrial parks and high-tech zones need to provide financial reports to the Management Boards of their particular zones if required.
Challenges that enterprises might face conducting tax audits
The current risks while conducting tax audits lie in unclear laws, incomplete knowledge and understanding of the law, bad consultation, or violations made by partners.
Specifically, the most common tax area that might be challenged by the tax authorities is Corporate Income Tax (CIT). There are several incentives for CIT in Vietnam. Tax authorities, however, may challenge incorrect incentives applied to new or expanded projects. Expected issues are: offset profit and loss between business activities and losses carried, inventory stock discrepancies, and intragroup service engagements without adequate supporting documents.
Another problematic area is the value-added tax (VAT). Businesses using tax audit plans should be mindful of the difference of revenue in VAT/CIT reconciliation and input VAT on stock discrepancies. Plus, VAT on discounts can turn out to be confusing.
Other problems can show up in personal income tax and foreign contractor tax. To prevent the loss, FDI enterprises need to pay special attention to the preparation process, from tax payment deadlines, inspection period and scope, to the estimated amount of tax payable.
Viettonkin’s tips to minimize risk and planning ahead
An old saying goes “Prevention is better than cure”. From our 13 years of professional experience, helping our client through the difficulties of tax compliance in Vietnam, we realized that the taxpayers should thoroughly understand the regulations and comply strictly with the procedures. In particular, extra attention should be paid to the compliance of the day-to-day bookkeeping and tax compliance per the prevailing regulations. Alternately, an in-house or outside controller or auditor can be the right person who can provide the ongoing support to ensure the fulfillment of the compliance requirements mentioned above.
At the same time, minimizing the risk and avoiding tax fines means being well-prepared for the tax audit and inspection. As tax is always inspected first, enterprises will have careful and comprehensive preparation in advance. Along with that, self-assessment on accounting storage and tax system of the enterprises can help taxpayers reduce the possibility of tax non-compliance.
Important as tax audit is, many businesses, especially foreign enterprises, fail to navigate common mistakes and figure out how to avoid them.
Tax audits might be daunting and confusing. However, businesses can always count on Viettonkin Consulting as a reliable tax assistance partner who can guarantee firms a smooth tax inspection procedure. Contact our dedicated team of experts now via our website to have access to world-class tax service.
