Due to certain differences in funding sources and investment activities, foreign-invested enterprises ("FIEs") are subject to some regulations that differ from those of other domestic enterprises ("domestic enterprises"). One of the differences between FIEs and domestic enterprises lies in the requirements related to the annual financial reporting of the enterprise. In this article, we will discuss some specific points that need to be considered in the financial reporting of FIEs.
1. On the independent audit requirement
Unlike domestic enterprises, whose financial reports are not required to be independently audited, according to the provisions of Point a Clause 1 Article 37 of the Law on Independent Audit 2011, the annual financial reports of FIEs are required to be audited by the auditing firms or a branch of foreign auditing firms in Vietnam under the provisions of Point a Clause 1 Article 37 of the Law on Independent Audit 2011. This requirement is also stipulated in Point a Clause 1 Article 15 of Decree 17/2012/ND-CP, which details and guides the implementation of some provisions of the Law on Independent Audit.
Therefore, after the financial reports have been prepared and approved internally within the company, the company must engage an auditing firm to conduct an audit of its financial reports.
In practice, this is one of the prerequisites that FIEs must meet when filing financial reports with the relevant authority.
In addition, in cases where an audit of the annual financial report is not conducted, FIEs may be subject to administrative penalties ranging from 40,000,000 VND to 50,000,000 VND, as stipulated in Clause 3 Article 53 of Decree 41/2018/ND-CP on administrative penalties in the field of accounting and independent audit.
2. Authorities receiving financial reports
Pursant to Article 110 of Circular 200/2014/TT-BTC, which provides guidance on the accounting system for enterprises, FIEs' financial reports must be submitted to the financial authority, the tax authority, the statistical authority, the parent enterprise, and the business registration authority. In addition, if an FIE is located in an export processing zone, industrial park or high-tech park, it must also submit its annual financial report to the board of directors of the export processing zone, industrial park or high-tech park upon request.
The difference between FIEs and domestic enterprises in terms of the authorities that receive their financial reports is that FIEs are required to submit their financial reports to the financial authority. The financial authority to which FIEs must submit their financial reports is the finance department of the province or central municipality where the FIE is registered.
It is also important to note that there are differences in the tax authorities that receive financial reports from FIEs. Enterprises are required to submit financial reports to the local tax authority directly in charge of tax administration. According to Article a.2 Clause 2 Article 3 of Circular 127/2015/TT-BTC on the issuance of new enterprise identification numbers and the assignment of tax authorities for enterprises, the tax authority directly responsible for tax management of FIEs is the tax department where the headquarters of the enterprise is located, as opposed to the tax sub-department for domestic enterprises.
With respect to the deadline for filing financial reports, FIEs comply with the provisions of Article a Clause 2 Article 109 of Circular 200/2014/TT-BTC, specifically, they must submit annual financial reports to the competent authority no later than 90 days after the end of the fiscal year.
If an FIE is late in submitting financial reports to the competent authorities, the enterprise may be fined from 5,000,000 VND to 10,000,000 VND for a delay of less than 03 months and from 10,000,000 VND to 20,000,000 VND for a delay of more than 03 months according to the provisions of Article A Clause 1 and Clause c Clause 2 Article 12 of Decree 41/2018/ND-CP. If financial reports are not submitted and found to be missing, the enterprise may be fined from 40,000,000 VND to 50,000,000 VND as stipulated in Article a Clause 4 Article 12 of Decree 41/2018/ND-CP.
