Should FDI Enterprises Choose IFRS Or VAS From The Beginning?

The Vietnamese Ministry of Finance has approved a roadmap for IFRS adoption, divided into three phases:

1. Preparation Phase (2020 – 2025): Encouraging voluntary adoption, conducting research, and providing IFRS training.
2. Voluntary Phase (2025 – 2030): Encouraging IFRS adoption for listed companies and foreign-invested enterprises.
3. Mandatory Phase (Post-2030): IFRS may become compulsory for all large enterprises.

The transition from VAS to IFRS is an inevitable trend that enhances the quality of financial reporting and elevates Vietnamese businesses in the international market.

Accounting vs. Taxation: IFRS or VAS?

From a taxation perspective, whether to apply IFRS or VAS from the outset depends on multiple factors. However, in most cases, VAS is the optimal choice initially, with IFRS being introduced as a supplementary framework as the business grows.

Below is a detailed analysis to help FDI enterprises make informed decisions:

Relationship Between Accounting (VAS/IFRS) And Taxation In Vietnam

In Vietnam, the accounting and taxation systems are closely linked, but there are key differences:

• VAS aligns with the tax system: VAS is designed to comply with Vietnam’s tax regulations, making tax settlements, filings, and compliance easier while minimizing errors.
• IFRS may create tax discrepancies: IFRS relies on the principles of fair value and substance over form, which can lead to differences between accounting profits and taxable income, complicating corporate income tax (CIT) calculations.

When Should A Business Apply VAS First And Transition To IFRS Later?

Applying VAS first is recommended if:
The business mainly operates in Vietnam and falls under the control of Vietnam’s tax system.
The company aims to simplify tax reporting and avoid maintaining two sets of financial statements.
There are no immediate plans for international capital raising or stock exchange listings abroad.

As the business expands, it can gradually transition to IFRS by:

• Applying IFRS for internal management reports to serve investors and stakeholders.
• Retaining VAS for tax reporting and compliance with Vietnamese regulations.

When Should A Business Apply IFRS From The Beginning?

Certain businesses should consider adopting IFRS from the outset, such as:
– Subsidiaries of multinational corporations that require IFRS-compliant reporting.
– Companies planning to list on international stock exchanges or attract foreign investment.
–  Enterprises in finance, banking, and insurance – sectors that tend to adopt IFRS early.
– Companies aiming for financial transparency and alignment with global accounting standards.

If IFRS is chosen, businesses must still ensure compliance with VAS for tax filing, as Vietnamese tax authorities currently base calculations on VAS.

Conclusion: Should A Business Choose VAS Or IFRS From The Start?

• For small and medium-sized enterprises or those operating mainly in Vietnam → VAS should be applied first for tax convenience.
• For businesses with international ambitions or subsidiaries of foreign corporations → IFRS can be considered from the beginning, but a clear strategy must be in place to manage tax differences.

Practical Recommendation: Businesses can combine both frameworks by:

1. Preparing VAS-based financial statements for tax authorities in Vietnam.
2. Maintaining IFRS reports for investors and long-term financial planning.

A full transition to IFRS is expected to become mandatory in the future (likely after 2030), so businesses should start planning gradually now.