Why 80% Of FDI Enterprises Encounter Compliance Risks In Their First Year In Vietnam

Vietnam has emerged as an increasingly attractive destination for foreign direct investment. However, in practice, a significant proportion of FDI enterprises encounter compliance risks within their first year of operation. These risks are not typically the result of intentional non-compliance, but rather stem from insufficient understanding of the local regulatory framework and the absence of a structured compliance roadmap.

A key contributing factor is the complexity and frequent updates of Vietnam’s legal and tax environment. The regulatory system comprises laws, decrees, and circulars, often accompanied by detailed implementing guidance. Many enterprises apply internal procedures developed at headquarters without properly adapting them to local requirements, resulting in compliance gaps from the outset.

Another common issue is the misconception that tax compliance obligations do not arise in the absence of revenue or operational activity. In Vietnam, enterprises are still required to submit statutory filings for VAT, corporate income tax (CIT), and personal income tax (PIT), even where no tax liability arises. Failure to submit returns on time is one of the most frequent compliance breaches and may lead to administrative penalties.

In addition, inadequate accounting and documentation systems in the early stages of establishment create significant exposure to tax risk. Expenses without valid supporting invoices, non-compliant payment arrangements, or insufficient documentation of business purpose are likely to be disallowed upon tax audit or finalization, thereby increasing the effective tax burden and impacting financial performance.

Non-compliance issues related to VAT, CIT, and foreign contractor tax (FCT) are also common. These include incorrect VAT declarations and improper handling of cross-border payments to foreign suppliers or service providers. Such errors may result not only in tax reassessments but also in full-scope tax audits by the authorities.

Furthermore, many enterprises overlook post-licensing compliance obligations, including investment reporting requirements, mandatory company signage, and proper establishment of capital bank accounts. Although these requirements are statutory, they are frequently underestimated during the initial setup phase.

The absence of a comprehensive compliance roadmap is another critical factor. Without proper coordination between legal, accounting, and tax functions, enterprises are more likely to miss deadlines or apply inconsistent treatments across compliance areas.

The consequences of non-compliance are material. Administrative penalties may range from tens to hundreds of millions VND. Tax authorities may impose retrospective assessments of VAT, CIT, and PIT, together with late payment interest of approximately 0.03% per day. In more severe cases, enterprises may be subject to comprehensive tax audits. In addition, non-compliance may restrict key corporate actions such as license amendments, capital increases, or business expansion.

In conclusion, most compliance risks faced by FDI enterprises in Vietnam do not arise from deliberate violations, but from inadequate preparation at the initial stage of operation. Establishing a robust compliance foundation from the outset is essential for ensuring operational stability and sustainable long-term growth in Vietnam.

Kim Ngan Ho
Tax Consultant | TPM Tax Agent
FDI Tax & Compliance Advisory

TPM Tax Agency | Vietnam
102 Phung Van Cung Street, Ward 7, Ho Chi Minh City
T: +84 28 3505 1800