Vietnam is increasingly becoming an attractive destination for Foreign Direct Investment (FDI). However, the local legal environment and tax regulations are characterized by rapid changes and strict compliance requirements. For foreign investors, a lack of understanding of local laws can lead not only to heavy administrative penalties but also to reputational risks and operational disruptions.
Drawing from our extensive experience in supporting FDI enterprises, TPM Tax Agency shares the 7 most common tax mistakes and their optimal solutions:
1. Risks in Transfer Pricing
This is an area of particular concern for Vietnamese tax authorities in their efforts to prevent base erosion and profit shifting.
- The Mistake: Many FDI enterprises engage in transactions—such as buying/selling goods, providing services, or intercompany loans—with their parent companies or affiliates without preparing Transfer Pricing documentation. Many units mistakenly believe that as long as they are not reporting a loss, they are safe from audits.
- The Consequence: Failure to prove the “arm’s length” nature of these transactions allows tax authorities to reassess prices, leading to increased taxable income, back taxes, and substantial late payment interest.
- The Solution: Perform margin analysis and prepare Local Files and Master Files on time in accordance with current regulations.
2. Misapplication of Corporate Income Tax (CIT) Incentives
Vietnam offers various tax incentives to attract investment, but these come with very stringent execution conditions.
- The Mistake: Businesses may unilaterally apply preferential tax rates or tax holidays based on general information without verifying them against their actual operations. For example, applying incentives meant for “new investment projects” to “expansion projects” before meeting the required criteria.
- The Consequence: Tax authorities may claw back the full amount of underpaid tax plus penalties during an audit, resulting in a loss of credibility with regulatory agencies.
- The Solution: Carefully review eligibility criteria regarding geography and industry sectors, and ensure the accounting system separately tracks income from incentivized activities.
3. Errors in Personal Income Tax (PIT) Finalization for Expatriates
Managing tax for foreign personnel is a major challenge due to the complexity of determining global taxable income.
- The Mistake: Failing to correctly identify tax residency status (the 183-day rule) leads to the application of incorrect tax rates. Additionally, benefits-in-kind—such as housing (exceeding the 15% cap of gross income), tuition fees for children, or home leave airfares—are often omitted from tax calculations.
- The Consequence: Expatriates may face personal tax arrears, which can negatively impact the retention of high-level talent.
- The Solution: Establish a system to monitor residency days and standardize the list of taxable allowances according to the latest 2026 regulations.
4. Overlooking Foreign Contractor Tax (FCT)
Many accountants focus solely on domestic taxes and overlook obligations when transacting with international partners.
- The Mistake: When paying foreign partners for software services, royalties, online advertising, or group management fees, the enterprise fails to withhold and declare FCT (including VAT and CIT for contractors).
- The Consequence: The Vietnamese enterprise must bear this tax on behalf of the partner, and this expense is often disqualified as a deductible expense for CIT purposes.
- The Solution: Review tax obligations in all international service contracts and declare FCT within the required timeframe upon payment.
5. “Bottlenecks” in Value Added Tax (VAT) Refunds
VAT refunds are a right that helps businesses optimize cash flow, but they are also the most prone to audit risks.
- The Mistake:
- Incorrect Eligibility: Confusing “new investment projects” (eligible for refund) with “ordinary business activities” (only eligible for carry-forward).
- Payment Errors: Invoices over 20 million VND paid in cash rather than through bank transfers, or debt offsets that lack legal standardization.
- Third-party Risks: Using invoices from “shell” companies or suppliers that have fled, causing the refund file to be suspended for prolonged verification.
- The Solution: Strictly control the legality of input invoices and ensure all payment flows are transparent through the banking system.
6. Violations Regarding Capital and Foreign Loans
The legality of investment capital directly impacts the validity of financial expenses in the future.
- The Mistake: Failing to contribute capital within the timeframe committed in the Investment Registration Certificate (IRC), or failing to register medium and long-term foreign loans with the State Bank of Vietnam.
- The Consequence: Interest expenses will be disqualified as deductible for tax purposes, and the enterprise may face administrative fines regarding foreign exchange management.
- The Solution: Closely monitor capital contribution deadlines and fulfill all registration and reporting procedures for foreign loans as required.
7. Lack of Preparation for Tax Inspections
Complacency in annual record-keeping is a common mistake that leaves businesses in a passive position.
- The Mistake: Scattered documentation and inconsistencies between accounting books and tax returns. Many FDI companies only begin reviewing their records once a formal inspection notice is received.
- The Consequence: Inability to explain discrepancies during a tax inspection leads to unfavorable outcomes and significant remedial costs.
- The Solution: Conduct periodic internal tax health checks to detect and adjust errors as soon as they arise.
In your investment journey in Vietnam, compliance is not just a legal obligation but the core foundation for protecting your business achievements. A transparent tax and legal management system from the very beginning acts as the strongest shield, allowing FDI enterprises to confidently focus on strategic growth goals.
As your partner in success, TPM Tax Agency introduces our specialized solution:
👉 FDI Compliance Foundation Package 2026
This package is designed to build a comprehensive “Compliance Ecosystem” for your business:
- Standardized Operations: Establish an integrated accounting and tax system that is fully compatible with local regulations.
- Optimized Benefits: Effectively leverage investment incentives to maximize cash flow for reinvestment.
- Systemic Risk Control: Ensure legal integrity throughout the capital structure, cross-border transactions, and personnel obligations.
Let TPM be your trusted partner, helping you build a prosperous, safe, and sustainable business future in Vietnam.
