Establishing an FDI enterprise in Vietnam: Key considerations on Tax, Accounting, and Legal Matters

Vietnam has become one of the most attractive destinations for foreign direct investment (FDI) thanks to its improving business environment, competitive labor costs, and favorable investment policies. However, in order to establish and operate an FDI enterprise effectively in Vietnam, investors need to pay particular attention to regulations on tax, accounting, and legal compliance.

1. Tax considerations

When operating in Vietnam, FDI enterprises are required to comply with basic tax obligations, including:

• Corporate Income Tax (CIT): The standard tax rate is currently 20%. Certain projects in high-tech, education, healthcare, and renewable energy may be eligible for tax incentives such as reduced tax rates or tax exemptions during the initial years.
• Value-Added Tax (VAT): Applied at three levels 0%, 5%, and 10% depending on the type of goods or services. Enterprises are required to declare and pay VAT either monthly or quarterly.
• Personal Income Tax (PIT): The enterprise is responsible for withholding and remitting PIT for employees, including both Vietnamese and foreign workers.
• Import and Export Duties: FDI enterprises engaging in international trade must be familiar with import/export tariffs as well as the free trade agreements (FTAs) that Vietnam is a party to.

Note: Investors should carefully review preferential tax policies based on investment location (industrial zones, economic zones, disadvantaged areas) to optimize costs.

2. Accounting considerations

FDI enterprises in Vietnam are required to comply with the Vietnamese Accounting Standards (VAS), unless permitted by the Ministry of Finance to apply IFRS. Key points include:

• Accounting Language: Vietnamese must be used (bilingual records may be allowed).
• Accounting Currency: Generally Vietnamese Dong (VND). The use of foreign currency requires prior approval.
• Bookkeeping System: Enterprises must maintain accounting books and vouchers in accordance with regulations.
• Financial Statements: Annual financial statements must be prepared and audited by an independent audit firm licensed in Vietnam.
• Tax Finalization: Enterprises must conduct annual CIT and PIT finalization and ensure complete documentation to avoid back taxes or penalties.

Note: From the outset, enterprises should establish a solid accounting system and engage a reputable consulting partner to ensure transparency and legal compliance.

See also: In-house Accounting vs. Outsourcing: Which Option Suits Businesses in Vietnam?

3. Legal considerations

Vietnam’s legal framework for FDI enterprises is relatively strict, especially regarding establishment and operations:

• Investment Registration Certificate (IRC): A mandatory license for foreign investors prior to setting up a company. The IRC specifies the objectives, scope, capital, and duration of the project.
• Enterprise Registration Certificate (ERC): After obtaining the IRC, enterprises must apply for the ERC to gain official legal entity status in Vietnam.
• Business Lines: Not all industries are open to FDI. Certain conditional sectors (e.g., logistics, real estate, education, telecommunications) require specific ownership ratios or special licensing.
• Labor Regulations: FDI enterprises must comply with Vietnam’s Labor Code, covering employment contracts, working hours, social insurance, and regulations regarding foreign employees.
• Foreign Exchange Regulations: All transactions relating to capital contributions, loans, and profit repatriation must comply with foreign exchange management laws.

Note: FDI enterprises should establish an internal legal team or partner with a local law firm to ensure compliance and avoid disputes or administrative penalties.

Vietnam is a highly promising market for foreign investors. However, establishing and operating an FDI enterprise requires a deep understanding of tax, accounting, and legal frameworks. With thorough preparation and strict compliance, FDI businesses can maximize the advantages of Vietnam’s dynamic business environment and preferential policies.  

To ensure the process of establishing an FDI enterprise in Vietnam is efficient, compliant, and cost-optimized, partnering with a professional consulting firm is a smart choice. Zora Consulting, with its team of seasoned experts in legal, tax and accounting services for FDI enterprises, will accompany you every step of the way - from preparing documents and securing investment licenses to advising on operations and financial management. If you are seeking a comprehensive solution for peace of mind when investing in Vietnam, contact Zora Consulting for tailored advice and end - to - end support.