Enterprises operating in Vietnam are required to meet thorough compliance obligations that are often complicated, time consuming and subject to continuous change by government bodies. As businesses seek to expand in Vietnam, foreign investors need to be aware of the risks arising from non-compliance and the potential ramifications of these corporate obligations, ensuring that non-compliance does not jeopardise future growth or value.
Non-compliance and compliance risks in Vietnam – how a ‘Compliance review’ can protect foreign investors.
In order to assess and understand the compliance status of a company and to prioritise risks, companies in Vietnam are recommended to regularly undertake a “Compliance Review” process. This Review assists in understanding existing internal issues, and offers a framework for which businesses can follow to improve their systems and processes, rectify historical compliance issues, and assure ongoing compliance with Vietnamese regulations.
What is a compliance review and what does it cover?
When performing a thorough compliance review of a company’s operations and systems, investors are able to identify outstanding/existing areas which should be addressed in terms of: accounting, taxation, labour & human resources and others:
- Taxation compliance: looks at the status of a company’s tax obligations, identifying tax risks arising from late lodgements, incorrect calculation processes, incorrect declarations or discrepancies between accounting and tax filings.
- Accounting compliance: assesses the status of the company’s accounting obligations according to Vietnamese Accounting Standards, identifying incorrect calculation processes, erroneous documentation, poor governance or controls, failure to review documentation, non-compliance with laws, and generally poor accounting processes.
- Labour and Human Resources compliance: evaluates compliance with Vietnamese Labour Laws, including compliant labour contracts, work permits for foreign employees, compliance with ongoing labour regulations, and payroll calculation accuracy including salary expenses and insurance expenses. The review provides insight as well into key employee competencies and skills, allowing the company to better assess the long-term training and personnel needs in the accounting, finance and payroll teams.
- Other compliance matters: this includes a review of relevant IT processes and software, statutory requirements such as charter capital contributions, company secretarial reporting and compliance, and other matters which may arise in the compliance review process and not otherwise covered.
After undertaking an assessment of these areas arising from the Compliance Review, investors gain a clear and practical understanding of the company’s processes and compliance structure, and can act upon advice/suggestions to apply corrective actions based upon risk, introducing enhancements the company’s overall compliance.
When and why should foreign investors in Vietnam undertake a compliance review
The Vietnamese Government continues to improve its legal and compliance framework, and combined with a focus on digitising the Government, this permits the authorities to identify and react to those who are not in compliance with the requirements in the law. Therefore, organisations should build a culture of governance, risk and compliance management that can withstand regulatory oversight in light of the current conditions in Vietnam. In addition, the ongoing release of new regulations impacting companies in Vietnam, together with the recent increasing penalties and other disciplinary measures taken by regulators, result in reviewing and understanding compliance becoming a necessary governance matter for companies operating in Vietnam.
We would advise that investors undertake a Compliance Review activity on a regular basis, in conjunction with their standard internal audit oversight, which enables them to ensure their business remains compliant at all times and up to date with the newest regulations and provisions imposed by the authorities, minimising their risk exposure on the long term.
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