Regulations requiring foreign companies to clarify their tax obligations after tax inspection

Foreign companies are required to clarify their tax obligations after tax inspection as a tax responsibility of the company upon being subject to tax inspection in accordance with the law. The following article sets out the legal provisions concerning foreign companies that are required to clarify their tax obligations after tax inspection and addresses certain related questions in order to assist individuals and organizations in protecting their lawful rights and interests.

I. Overview of foreign companies required to clarify their tax obligations after tax inspection in the current period

In the current period, foreign companies that have undergone tax inspection in Vietnam are required to pay particular attention to clarifying any tax obligations arising therefrom, especially issues related to cross-border transactions and transfer pricing, in order to ensure stable and lawful business operations in Vietnam.

Clarifying tax obligations after tax inspection constitutes a responsibility of foreign companies following inspection and serves to facilitate the management and supervision by the tax authorities.

1. Concept of foreign companies required to clarify their tax obligations after tax inspection

Pursuant to Point b, Clause 1, Article 2 of the Law on Corporate Income Tax 2025, corporate income taxpayers are organizations engaged in the production and trading of goods and services that generate taxable income in accordance with this Law (hereinafter referred to as “enterprises”), including enterprises established under foreign law (hereinafter referred to as “foreign enterprises”) with or without a permanent establishment in Vietnam. Accordingly, a foreign enterprise or foreign company is an enterprise established under foreign law that has or does not have a permanent establishment in Vietnam.

Pursuant to Clause 1, Article 3 of the Law on Tax Administration 2019, tax is a compulsory payment to the state budget by organizations, households, business households, and individuals in accordance with tax laws.

Tax inspection is an activity conducted by tax authorities to assess taxpayers’ compliance with tax laws, to verify and collect evidence to determine violations of tax laws on the basis of analysis of information and data related to taxpayers.

Accordingly, a foreign company required to clarify its tax obligations after tax inspection refers to the legal responsibility of a foreign company to comply with additional or adjusted tax obligations in accordance with the official conclusions of tax inspection and examination conducted by the Vietnamese tax authorities.

2. Practical example relating to foreign companies required to clarify tax obligations after tax inspection

A foreign-invested company operating in the manufacturing sector in Vietnam reported consecutive losses for many years, while other companies in the same industry were profitable. Upon inspection, the tax authority discovered that the company imported raw materials and machinery from its overseas parent company at prices higher than market prices and sold products to the parent company at prices lower than market prices.

Inspection results: The tax authority determined that this constituted transfer pricing for the purpose of shifting profits abroad and reducing the corporate income tax (CIT) payable in Vietnam. The company was subject to a substantial CIT reassessment, together with penalties and late payment interest.

Obligations to be clarified: The company was required to substantiate, with complete documentation, that transactions with related parties were conducted in accordance with the arm’s length principle. Failing such substantiation, the company must accept the tax authority’s tax assessment decision and pay penalties in accordance with the law.

3. Why foreign companies are required to clarify tax obligations after tax inspection

Foreign companies are required to clarify tax obligations after tax inspection as a tax obligation vis-à-vis the tax inspection authority. Specifically:

• Compliance with the Vietnamese legal system: Foreign companies operating in Vietnam must fully comply with legal obligations relating to taxation, accounting, and financial reporting. Clarifying tax obligations after inspection is a step to rectify errors and ensure such compliance.
• Enhancing credibility with regulatory authorities: Proactively clarifying and remedying issues after inspection helps companies build a law-abiding, professional image and enhance credibility with Vietnamese tax authorities.
• Protecting reputation and brand: Tax violations may adversely affect a company’s reputation and brand in international markets, thereby hindering future business activities.
• Administrative penalties and tax arrears: Failure to clarify and fully discharge tax obligations may expose enterprises to administrative penalties, late payment interest, and tax arrears in accordance with the Law on Tax Administration.
• Risk of suspension of operations: In cases of serious violations or failure to remedy post-inspection issues, foreign companies may be subject to temporary suspension or cessation of operations in Vietnam.
• Difficulties in remitting profits abroad: Enterprises are permitted to remit profits abroad only after fully fulfilling tax obligations to the State and submitting audited financial statements. Tax non-compliance may obstruct this process.

Accordingly, foreign companies are required to clarify their tax obligations after tax inspection for the foregoing reasons.

III. Legal provisions relating to foreign companies required to clarify tax obligations after tax inspection

Understanding the legal provisions relating to foreign companies required to clarify tax obligations after tax inspection is a common need among various stakeholders. In this regard, NPLaw sets out the following applicable regulations in accordance with the most recent laws.

1. Regulations to be noted regarding foreign companies required to clarify tax obligations after tax inspection

Pursuant to Article 113 of the Law on Tax Administration 2019, cases subject to tax inspection include:

• Where there are signs of violations of tax laws;
• For the purpose of resolving complaints or denunciations, or implementing anti-corruption measures;
• At the request of tax administration activities based on risk classification results in tax administration;
• At the recommendation of the State Audit Office, conclusions of the State Inspectorate, or other competent authorities.

Pursuant to Article 118 of the Law on Tax Administration 2019, foreign companies have the following rights and obligations after tax inspection:

• To provide explanations regarding matters related to the contents of the tax inspection;
• To lodge complaints against decisions or acts of the inspection decision issuer, the head of the inspection team, or inspection team members during the inspection; and to lodge complaints against inspection conclusions or post-inspection handling decisions in accordance with the law on complaints; during the pendency of complaint resolution, the complainant must still comply with such decisions;
• To receive the tax inspection minutes and request explanations of their contents;
• To refuse to provide information or documents unrelated to the inspection contents or classified as State secrets, unless otherwise provided by law;
• To request compensation for damages in accordance with the law;
• To denounce violations of law by the head of the tax authority, the head of the tax inspection team, or inspection team members in accordance with the law;
• To comply with tax inspection decisions;
• To promptly, fully, and accurately provide information and documents at the request of the inspection decision issuer, the head of the inspection team, or inspection team members, and to bear legal responsibility for the accuracy and truthfulness of the information and documents provided;
• To implement requests, recommendations, inspection conclusions, and handling decisions of the inspection decision issuer, the head of the inspection team, inspection team members, and competent state authorities;
• To sign the inspection minutes.

Pursuant to Clause 5, Article 107 of the Law on Tax Administration 2019, tax examination and tax inspection are conducted to assess the completeness, accuracy, and truthfulness of documents, information, and dossiers declared, submitted, or presented by taxpayers to tax authorities; to assess taxpayers’ compliance with tax laws and other relevant legal provisions in order to impose tax handling measures in accordance with the law.

Accordingly, foreign companies should take note of the above legal provisions regarding the obligation to clarify tax obligations after tax inspection.

2. Factors that may affect the tax obligations of foreign companies after tax inspection

The tax obligations of foreign companies after tax inspection may be affected by various factors, primarily related to compliance with tax laws and the accuracy of declared dossiers. The main factors include:

Violations of tax laws: This is the most direct factor leading to adjustments of tax obligations after tax inspection. Common violations include:

• Incorrect declaration of revenue and expenses: Incorrect determination of cost of goods sold or deductible expenses when calculating corporate income tax may result in tax arrears.
• Incorrect determination of the tax base: Errors in determining the taxable base for other types of taxes (e.g., natural resource tax, value-added tax) also affect the amount of tax payable.
• Failure to submit tax returns on time: Late submission of tax returns, depending on the duration of delay, shall be subject to administrative penalties in accordance with the law.
• Tax evasion: Intentional acts of tax evasion, if detected, will result in more severe sanctions, including criminal liability depending on the seriousness of the violation.

In summary, tax obligations after tax inspection mainly arise from acts of non-compliance with tax laws during the declaration process and business operations of foreign companies, thereby affecting the amount of tax arrears, penalties, and late payment interest that foreign companies are required to bear. Accordingly, Foreign companies are required to clarify their tax obligations after tax inspection.

3. Measures for handling violations related to foreign companies required to clarify their tax obligations after tax inspection

Upon completion of a tax inspection, the tax authority shall issue a decision on handling violations. The principal handling measures include:

Administrative sanctions on taxation:
Pursuant to Article 138 of the Law on Tax Administration 2019, forms of administrative sanctions for violations of tax administration include warnings and monetary fines.

• Warning: Applicable to less serious procedural tax violations with mitigating circumstances.
• Monetary fine: The amount of the fine depends on the nature of the violation (e.g., late submission of tax returns, incorrect declaration not resulting in tax shortfall, incorrect declaration resulting in tax shortfall, etc.) and the seriousness of the violation, as specifically provided in Decree No. 125/2020/NĐ-CP and guiding documents.
• Additional penalties: May be applied depending on the nature of the case.

Measures for enforcement of administrative tax decisions:

Pursuant to Article 125 of the Law on Tax Administration 2019, measures for enforcement of administrative decisions on tax administration include:

• Deduction of money from accounts of the enforced entity at the State Treasury, commercial banks, or other credit institutions; freezing of accounts;
• Deduction of a portion of salary or income;
• Suspension of customs procedures for exported and imported goods;
• Suspension of the use of invoices;
• Distraint of assets and auction of distrained assets in accordance with the law;
• Collection of money or other assets of the enforced entity held by other agencies, organizations, or individuals;
• Revocation of the enterprise registration certificate, business registration certificate, cooperative registration certificate, investment registration certificate, establishment and operation license, or practicing license.

Accordingly, foreign companies are required to clarify their tax obligations after tax inspection and are subject to handling measures in accordance with the above provisions.

IV. Clarification of issues related to foreign companies required to clarify their tax obligations after tax inspection

To better understand the regulations related to foreign companies required to clarify their tax obligations after tax inspection, below are several frequently asked questions and corresponding explanations.

1. What specific steps must foreign companies take to clarify their tax obligations after tax inspection?

Pursuant to Clause 2, Article 118 of the Law on Tax Administration 2019, foreign companies subject to tax inspection have the following obligations:

• To comply with tax inspection decisions;
• To promptly, fully, and accurately provide information and documents as requested by the inspection decision issuer, the head of the inspection team, and inspection team members, and to bear legal responsibility for the accuracy and truthfulness of the information and documents provided;
• To implement requests, recommendations, tax inspection conclusions, and handling decisions of the inspection decision issuer, the head of the inspection team, inspection team members, and competent state authorities;
• To sign the tax inspection minutes.

Pursuant to the above provisions, after completion of a tax inspection and receipt of the tax inspection minutes or written inspection conclusions, the company shall take the following specific steps to clarify and fulfill its tax obligations:

• Receipt of inspection conclusions from the competent authority:
  The foreign company receives the Tax Inspection Minutes and the Decision on Administrative Sanctions on Taxation (if any). The company should carefully review and fully understand the conclusions, particularly the assessed tax arrears, penalties, and late payment interest (if any).
• Review of records:
  Compare the violations stated in the inspection conclusions with the company’s accounting books, documents, and original invoices. This helps determine the accuracy of the conclusions and prepare for subsequent steps.
• Identification of causes of errors:
  Clarify the causes leading to the errors (due to mistakes, misinterpretation of legal provisions, or other objective factors) in order to prepare appropriate explanations.
• Selection of resolution options:
  Depending on whether the company agrees or disagrees with the inspection conclusions, different courses of action may be taken:
  + In case of agreement with the inspection conclusions: The company accepts all tax obligations (tax arrears, penalties, late payment interest) in accordance with the handling decision of the tax authority. The company shall make additional tax declarations (if necessary) and fully pay the taxes, penalties, and late payment interest into the state budget within the prescribed time limit stated in the decision.
  + In case of partial or total disagreement with the conclusions: The company has the right to lodge a complaint against the decision on administrative sanctions or the acts of the inspection team if there are grounds to believe that such decision is inconsistent with the law.

Accordingly, the specific steps that foreign companies are required to take to clarify their tax obligations after tax inspection shall be carried out in accordance with the above provisions.

2. What rights may foreign companies claim when clarifying tax obligations after tax inspection?

Pursuant to Clause 1, Article 118 of the Law on Tax Administration 2019, foreign companies subject to tax inspection have the following rights:

• To provide explanations regarding matters related to the contents of the tax inspection;
• To lodge complaints against decisions or acts of the inspection decision issuer, the head of the inspection team, or inspection team members during the inspection; and to lodge complaints against inspection conclusions or post-inspection handling decisions in accordance with the law on complaints; during the period of complaint resolution, the complainant must still comply with such decisions;
• To receive the tax inspection minutes and request explanations of the contents thereof;
• To refuse to provide information or documents unrelated to the inspection contents or classified as State secrets, unless otherwise provided by law;
• To request compensation for damages in accordance with the law;
• To denounce violations of law by the head of the tax authority, the head of the tax inspection team, or inspection team members in accordance with the law.

Pursuant to the above provisions, foreign companies may request the competent authority issuing the tax inspection minutes to explain the contents thereof in order to clarify tax obligations after tax inspection, or may lodge complaints or denunciations where they do not agree with the inspection decision.

3. Is it necessary to notify shareholders of the tax obligations of a foreign company after tax inspection?

Pursuant to Articles 115 and 119 of the Law on Enterprises 2020 regarding the rights and obligations of shareholders, there is no specific provision requiring a company to directly notify each shareholder of tax obligations arising after a tax inspection.

Tax obligations are the responsibility of the enterprise itself toward the competent state authorities and do not constitute direct obligations of shareholders.

However, such notification may be necessary based on the following factors:

• Internal company regulations:
  The company charter or shareholder agreements may contain provisions on the disclosure of material financial information, including significant tax liabilities, to shareholders.
• Information transparency (especially for listed companies):
  Companies, particularly listed companies, are generally required to comply with principles of information transparency to protect investors’ interests. A substantial tax obligation may materially affect the company’s financial position and business performance and therefore may be subject to disclosure under regulations on periodic or extraordinary information disclosure.
• Impact on shareholders’ interests:
  Arising tax obligations may affect after-tax profits, dividend-paying capacity, or the value of equity, thereby directly affecting shareholders’ interests. Shareholders have the right to be informed of factors that may affect their investment.
• Laws of the country of the company or shareholders:
  The laws of the country where foreign shareholders reside should also be considered, as there may be specific regulations on income reporting or tax obligations related to their overseas investments.

Accordingly, although there is no statutory requirement to notify each shareholder of tax obligations after tax inspection, such notification may be carried out pursuant to internal company regulations or to ensure transparency and protect shareholders’ legitimate interests. In practice, Foreign companies are required to clarify their tax obligations after tax inspection, which may necessitate appropriate internal disclosures.

4. What difficulties may foreign companies encounter in the process of clarifying tax obligations after tax inspection?

Foreign companies may face various difficulties in the process of clarifying tax obligations after tax inspection in Viet Nam, mainly arising from differences in legal systems, language barriers, and administrative issues, including but not limited to the following:

• Differences in interpretation and application of laws:
  This is the most common cause of disputes. Vietnamese tax authorities and foreign enterprises may interpret tax regulations differently, particularly with respect to complex issues such as tax rates, tax incentives, types of taxes, transfer pricing, and related-party transactions.
• Determination of related-party transaction prices (transfer pricing):
  Tax authorities often closely scrutinize service fees paid to overseas parent companies or intra-group transactions to ensure that prices reflect arm’s length principles. Enterprises may encounter difficulties in substantiating the reasonableness and validity of such expenses.
• Deductible expenses:
• Foreign enterprises may face challenges in proving that expenses incurred overseas are directly related to production and business activities in Viet Nam.
• Frequent changes in tax laws:
• Vietnamese tax regulations may be overlapping and subject to frequent amendments, making it difficult for foreign enterprises to timely update and comply.
• Language barriers:
• The entire inspection, explanation process, and legal documentation are conducted in Vietnamese. Foreign enterprises need bilingual legal and accounting professionals to fully understand requirements and accurately convey information.
• Complex and prolonged procedures:
• The process of explanation and lodging complaints against administrative tax decisions may be time-consuming and procedurally complex. Enterprises must prepare complete dossiers in accordance with proper procedures; otherwise, the resolution process may be prolonged or legitimate rights may be adversely affected.

Accordingly, to overcome these difficulties, foreign companies should proactively review internal tax compliance, prepare comprehensive documentation, and consider seeking support from tax consultants or law firms experienced in Viet Nam.

5. What information is mandatory for foreign companies to provide in order to clarify tax obligations after tax inspection?

Pursuant to Point b, Clause 2, Article 118 of the Law on Tax Administration 2019, foreign companies are obliged to promptly, fully, and accurately provide information and documents as requested by the inspection decision issuer, the head of the inspection team, and inspection team members, and shall bear legal responsibility for the accuracy and truthfulness of the information and documents provided.

Accordingly, the mandatory information that foreign companies are required to provide to clarify tax obligations after tax inspection includes, inter alia, the following:

Enterprise legal dossiers:

• Enterprise Registration Certificate and any amendments (if any);
• Company Charter;
• Financial regulations, salary and bonus regulations;
• Information on bank accounts registered with tax authorities;
• List of shareholders/capital-contributing members.

Tax declaration and finalization dossiers:

• All submitted tax returns: monthly/quarterly VAT returns, provisional quarterly CIT returns, PIT returns;
• Annual financial statements for the periods subject to inspection;
• CIT and PIT finalization dossiers for the fiscal years under inspection;
• Tax refund dossiers (if any);
• State budget payment documents (receipts, payment orders) for VAT, CIT, PIT, business license tax, etc.

Accounting books and supporting documents:

• Printed, signed, and sealed accounting books (general journal, general ledger, cash books, detailed ledgers, etc.);
• Copies of original supporting documents, including receipts, payment vouchers, warehouse receipt and delivery notes, and accounting vouchers;
• Electronic invoices (input and output) obtained from the tax authority’s portal or the enterprise’s software system, ensuring legality, validity, and reasonableness;
• Cost calculation sheets and production norms (if the enterprise engages in manufacturing or construction activities).

Transaction- and asset-related dossiers:

• Contracts for the purchase and sale of goods and services (both English and Vietnamese versions for foreign companies);
• Fixed asset dossiers (purchase decisions, depreciation decisions, handover minutes, etc.);
• Bank records (bank statements, remittance documents);
• Customs declarations and dossiers for exported and imported goods, together with documents evidencing payment of import and export taxes (if any);
• Other information and documents as requested by the tax inspection authority.

Accordingly, the above information may be requested by the tax inspection authority from foreign companies in order to clarify tax obligations after tax inspection.

V. Are you seeking legal counsel to obtain effective support regarding foreign companies required to clarify tax obligations after tax inspection?

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