Legal regulations and risks enterprises should know regarding the legalization of payroll and tax records

The legalization of payroll and tax records is a critical issue for enterprises in managing finance, accounting, and compliance with tax obligations under current laws. Such a process involves not only the completion and maintenance of payroll documents and accounting records but also directly affects the legitimacy of deductible expenses, personal income tax withholding obligations, and potential risks arising during tax inspections and audits. If handled improperly, enterprises may face tax reassessments, tax arrears, or administrative sanctions. 

I. Current situation regarding the legalization of payroll and tax records

At present, issues relating to the “legalization of payroll and tax records” remain relatively common in business operations, particularly among small and medium-sized enterprises and enterprises with inadequate accounting controls. Some enterprises adjust payroll records, employment contracts, or payment documents to align with expenses intended to qualify as deductible expenses for tax finalization purposes, or to reduce corporate income tax and social insurance obligations.

However, adjusting payroll records in a manner that does not accurately reflect actual salary payments may result in discrepancies in tax declarations, create significant risks during tax audits and inspections, and potentially lead to tax arrears, administrative sanctions, or tax reassessments. Consequently, it has been strongly regulated by laws, requiring greater transparency and consistency among employment records, payroll documents, and tax obligations.

II. Concept of payroll and tax record legalization

1. What is the legalization of payroll and tax records?

The “legalization of payroll and tax records” refers to a process by which an enterprise reviews, adjusts, and completes documents relating to salary payments and tax declarations to ensure that actual payment figures correspond with accounting and tax records in a complete, consistent, and legally compliant manner.

2. In which cases should an enterprise regularize payroll and tax records?

Enterprises should regularize payroll and tax records whenever inconsistencies or discrepancies exist between actual payments and declared records. Typical circumstances include:

• Discovery of errors in payroll records, employment contracts, or payment documents;
• Inspections and audits by tax or social insurance authorities;
• Annual tax finalization procedures.

In addition, legalization may be necessary if an enterprise has changed its salary policies or workforce structure but has not timely updated supporting documents, or if data standardization is required for auditing purposes, financing arrangements, or transactions with business partners. The purpose is to ensure that records are complete, consistent, and capable of minimizing potential legal risks.

III. Legal regulations relating to the legalization of payroll and tax records

1. How does the law regulate payroll record management within enterprises?

The law requires enterprises to maintain payroll records that are complete, lawful, and supported by appropriate documents in order to ensure transparency in salary payments, accounting practices, and tax declarations.

Specifically:

• Article 93 of the Labor Code 2019 requires employers to establish salary scales and payroll systems as a basis for recruitment, labor management, and salary payment.
• Article 95 of the Labor Code 2019 requires employers to pay salaries fully, on time, and in accordance with employment contracts; salary payments must be transparent and properly documented.
• Article 16 of the Accounting Law 2015 requires accounting documents to contain essential information, including the name and date of issuance, information of relevant parties, details of the financial transaction, quantity, unit price, total amount, and signatures of relevant parties.
• Article 6 of the Tax Administration Law 2025 establishes the principles of transparency and accountability in tax administration, requiring taxpayers to self-declare, self-assess, and self-pay taxes while ensuring the accuracy and truthfulness of tax records.

2. In what situations should payroll and tax records be regularized?

Typical situations include:

• Incomplete or inaccurate accounting and tax records: Pursuant to Article 16 of the Accounting Law 2015, accounting documents must accurately and fully reflect economic transactions. Thus, if payroll records, employment contracts, attendance sheets, or payment documents are inconsistent with actual circumstances, enterprises should adjust and complete the relevant documents.
• Tax finalization procedures or tax audits and inspections: Under Article 22 of the Tax Administration Law 2025, tax inspections are conducted to assess the completeness, accuracy, and truthfulness of tax declarations and payments. Consequently, enterprises should standardize payroll records to substantiate salary expenses during inspections.
• Salary expenses lacking sufficient legal validity for tax purposes: Under Article 6 of the Tax Administration Law 2025, tax declarations and administration must accurately reflect the substance of transactions. If payroll documents lacks consistency, enterprises should conduct a review to reduce the risk of expense disallowance or tax reassessment.
• Changes in salary policies not yet updated in documents: Pursuant to Article 95 of the Labor Code 2019, salaries must be paid in accordance with employment contracts. Thus, whenever salary levels or allowances are adjusted without corresponding updates to contracts and supporting documents, enterprises should complete and update the relevant records. 

3. What administrative sanctions may apply to the legalization of payroll and tax records?

Vietnamese law does not specifically define the term “legalization of payroll and tax records”. However, where such activities involve the creation of payroll records that do not reflect actual circumstances, the use of unlawful documents, or inaccurate tax declarations, legal sanctions may apply under labor and tax regulations. 

Specifically, employers may be fined under Clauses 1 and 2, Article 17 of the relevant regulations governing salary-related violations:

• Fines ranging from 5,000,000 VND to 10,000,000 VND for violations relating to salary scales, payroll systems, bonus regulations, or salary statements;
• Fines ranging from 5,000,000 VND to 50,000,000 VND (depending on the number of affected employees) for late salary payments, underpayment of salaries, or unlawful salary deductions.

Additionally, under Clause 5, Article 17, employers may be required to pay all outstanding salaries together with interest on delayed payments.

From a tax perspective, under Clause 3, Article 44 of the Tax Administration Law 2025, inaccurate declarations resulting in an underpayment of tax or incorrect tax incentives, reductions, or refunds may result in a fine equal to 20% of the under-declared tax amount, in addition to payment of the outstanding tax and late payment interest.

If false records or documents are used to misrepresent the substance of transactions for the purpose of reducing tax liabilities, such conduct may constitute tax evasion under Clause 4, Article 45 of the Tax Administration Law 2025, resulting in fines ranging from one to three times the amount of evaded tax. In serious cases, offenders may be subject to criminal prosecution under Article 200 of the Penal Code 2015 (as amended in 2017 and 2025).

4. What should enterprises keep in mind to avoid violations when legalizing payroll and tax records?

First, payroll records must accurately reflect actual salary payments, including employment contracts, salary scales, payroll sheets, attendance records, and payment vouchers. Pursuant to Clauses 1 and 2, Article 17 of Decree No. 12/2022/ND-CP, violations such as failure to disclose salary scales and payroll systems, or failure to pay salaries correctly, fully, or on time, may result in administrative sanctions and mandatory remedial measures.

Second, enterprises must ensure that accounting documents are lawful, complete, and accurate. Under Clause 1, Article 16 of the Accounting Law 2015, accounting documents must contain all required information, including issuance names and dates, transaction details, amounts, and signatures of relevant parties. Documents that do not reflect actual transactions may result in the disallowance of expenses during tax assessments.

Third, tax declarations must accurately reflect the substance of transactions and actual tax obligations. Pursuant to Clause 3, Article 44 of the Tax Administration Law 2025, inaccurate declarations leading to tax underpayment are subject to a fine equal to 20% of the under-declared tax amount, in addition to outstanding taxes and late payment interest.

Finally, enterprises should regularly review, reconcile, and update payroll and tax records, particularly when changes occur in personnel policies, salary structures, or organizational arrangements, to ensure consistency and minimize errors before tax inspections are conducted under Article 22 of the Tax Administration Law 2025.

IV. Questions regarding the legalization of payroll and tax records

1. Does the legalization of payroll records lead to personal income tax obligations?

The adjustment, supplementation, or “legalization” of payroll records may lead to personal income tax obligations if it results in the recognition or correction of an employee’s actual taxable income.

Pursuant to Clause 2, Article 3 of the Personal Income Tax Law 2025, income from salaries and wages constitutes taxable income and includes salaries, wages, remuneration, monetary and non-monetary benefits, and allowances and subsidies of a salary or wage nature.

Accordingly, if adjustments to payroll records result in additional salaries, wages, or employee benefits being recognized, the resulting difference will constitute taxable income subject to personal income tax declaration and payment in accordance with the law.

However, according to Clause 8, Article 4 of the Personal Income Tax Law 2025, overtime pay and night-shift pay (to the extent such payments exceed normal daytime or standard working-hour wages) are exempt from personal income tax.

2. Is the legalization of payroll and tax records mandatory?

Vietnamese law does not prescribe the “legalization of payroll and tax records” as a mandatory legal procedure. Nevertheless, enterprises are legally obligated to ensure that payroll records, accounting documents, and tax records accurately reflect actual transactions, are complete, and comply with applicable legal requirements.

Pursuant to Clause 1, Article 16 of the Accounting Law 2015, accounting documents must fully and accurately reflect economic and financial transactions. In addition, Clause 2, Article 6 of the Tax Administration Law 2025 requires taxpayers to self-declare, self-assess, and pay taxes based on actual transactions and circumstances.

Accordingly, “legalization” is generally relevant only where an enterprise needs to review, adjust, or complete its records to ensure legal compliance, rather than constituting a mandatory procedure applicable in all circumstances.

In other words, while the legalization of payroll and tax records is not a mandatory legal procedure, maintaining payroll and tax records that accurately reflect actual circumstances and comply with legal requirements is a mandatory obligation of every enterprise. 

3. When should a business review and regularize payroll and tax records?

First, whenever there are changes in salary policies, personnel structures, or compensation levels, enterprises should update employment contracts, salary scales, payroll records, and related documents to ensure consistency, in accordance with Article 16 of the Accounting Law 2015 regarding the completeness and accuracy of accounting records.

Second, at the end of an accounting period or prior to tax finalization, enterprises should reconcile all payroll records, labor costs, and tax obligations to identify and correct potential errors before filing. Pursuant to Clause 2, Article 6 of the Tax Administration Law 2025, taxpayers are responsible for the accuracy of their tax declarations.

Third, when preparing for tax inspections, tax audits, or labor inspections, enterprises should review and complete their documents to ensure that sufficient supporting evidence is available for explanations and verification purposes. Under Article 22 of the Tax Administration Law 2025, tax authorities are empowered to examine the truthfulness and accuracy of tax declarations and tax payments.

4. What should an enterprise do upon discovering errors in previously filed payroll and tax records?

When errors are identified in payroll records or tax filings that have already been submitted, an enterprise should promptly conduct a review, determine the cause of the discrepancies, and make the necessary corrections or supplementary declarations to ensure accuracy and mitigate legal risks.

First, the enterprise should review all documents relating to salaries and taxes, including employment contracts, payroll records, attendance sheets, and accounting documents, in order to identify the specific errors and verify the validity of supporting documents. Pursuant to Clause 1, Article 16 of the Accounting Law 2015, accounting documents must accurately and completely reflect actual economic transactions.

Next, the enterprise should submit supplementary tax declarations to correct any inaccurate figures. Under Clause 2, Article 6 of the Tax Administration Law 2025, taxpayers are responsible for self-declaration and for ensuring the accuracy of their tax records. Accordingly, timely correction is essential to ensure compliance with tax obligations.

Where the error results in an underpayment of tax, the enterprise may be subject to fines under Clause 3, Article 44 of the Tax Administration Law 2025, including a fine equal to 20% of the under-declared tax amount, together with payment of the outstanding tax and applicable late payment interest.

5. Can expenses for professional services relating to payroll and tax record legalization be treated as deductible expenses?

Pursuant to Clause 1, Article 3 of the Corporate Income Tax Law 2025, taxable income includes income derived from the production and trading of goods and services as well as other categories of income specified in Clause 2 of the same Article. Expenses incurred in connection with business operations may be considered deductible if they are directly related to revenue-generating activities.

Accordingly, expenses for accounting, tax, payroll review, and payroll document advisory services may qualify as deductible expenses only if they satisfy all of the following conditions:

• The expenses are actually incurred;
• The expenses are directly related to the enterprise’s business operations; and
• The expenses are supported by valid invoices and lawful supporting documents.

However, where such expenses are incurred for the purpose of concealing violations or creating records that do not accurately reflect the substance of actual transactions, tax authorities may reject them as deductible expenses during tax finalization procedures.

V. Why should you seek legal advice from NPLaw regarding payroll and tax record legalization issues?

Disputes or compliance issues relating to the legalization of payroll and tax records often involve complex legal matters, including the validity of salary payment documentation, employment contracts, tax withholding obligations, tax declarations, and the risk of tax audits, tax reassessments, or administrative penalties. If these issues are not properly reviewed and addressed, enterprises may encounter difficulties in ensuring that salary-related expenses are legally recognized.

With a team of lawyers experienced in corporate, labor, and tax law, NPLaw assists enterprises in conducting comprehensive assessments of payroll and tax record systems, identifying areas of non-compliance, and advising on corrective measures in accordance with current legal requirements. In addition, NPLaw supports enterprises in developing payroll management procedures, standardizing accounting documents, resolving historical record deficiencies, and representing enterprises in communications and explanations before tax authorities when required, thereby minimizing potential legal risks.

The information provided above is for reference purposes only. Should you require detailed advice regarding a specific matter, please contact NPLaw Firm for prompt consultation and assistance.