Can FDI Companies Face Criminal Charges for Tax Non-Declaration?

Failure to declare taxes by a foreign-invested enterprise (FDI) may lead to administrative penalties. However, in certain situations, the risk may escalate to criminal liability for tax evasion under Vietnamese law.

Failure to Declare Taxes by FDI Companies: When Does the Risk Become Criminal?

For many FDI companies operating in Vietnam, tax declaration procedures can sometimes appear complicated. Differences in legal systems, language barriers, and accounting practices may cause businesses to unintentionally fail to declare taxes or submit incomplete tax declarations.

In most cases, such conduct only results in administrative penalties related to tax obligations. However, in more serious situations, authorities may consider criminal prosecution for tax evasion under Vietnamese law.

This is precisely what concerns many foreign investors, directors, and chief accountants of FDI enterprises:

• When is the failure to declare taxes considered merely an administrative violation?
• When can such conduct be subject to criminal prosecution?
• Can foreign managers or executives be investigated or even restricted from leaving Vietnam?

Understanding the boundary between administrative tax violations and criminal tax evasion is essential for FDI businesses seeking to protect themselves from legal risks.

Is Failure to Declare Taxes Always Considered Tax Evasion?

The answer is not necessarily.

Under the Law on Tax Administration 2019, many acts involving late or incomplete tax declarations are initially handled through administrative sanctions, such as:

• Monetary fines
• Tax reassessment and collection of unpaid taxes
• Late payment interest
• Additional penalties calculated as a percentage of the underpaid tax amount

This means that not every error in tax declaration leads to criminal liability.

In practice, many FDI companies encounter issues such as:

• Accounting systems that differ from Vietnamese standards
• Misunderstanding of tax obligations in Vietnam
• Reporting errors from parent companies or affiliated entities
• Lack of familiarity with local tax regulations

Such situations are often addressed by tax authorities under Decree No. 125/2020/ND-CP on administrative penalties in taxation and invoices.

However, when the conduct shows intentional behavior aimed at avoiding tax obligations, the legal risk may escalate to criminal liability.

Signs That Conduct May Be Considered Tax Evasion

Under the Vietnamese Criminal Code, the crime of tax evasion may arise when an individual or organization performs certain acts intended to avoid paying taxes or reduce tax obligations unlawfully.

Common examples include:

1. Failure to Submit Tax Declarations

If a company has an obligation to file tax declarations but intentionally fails to submit tax returns, resulting in the authorities being unable to determine the tax liability.

2. Failure to Record Revenue in Accounting Books

For example:

• Concealing revenue
• Omitting certain transactions from accounting records
• Maintaining two sets of accounting books

3. Using Illegal Invoices or Documents

This may include:

• Using false or fabricated invoices
• Purchasing or selling invoices to reduce tax obligations
• Recording incorrect transaction values

4. Providing False Declarations to Reduce Tax Payable

A key legal factor is that the amount of tax evaded must meet statutory thresholds before criminal liability can be considered.

Under the Vietnamese Criminal Code:

• If the amount of tax evaded is VND 100 million or more, or
• If the amount is lower but the offender has previously been administratively sanctioned for similar conduct

then the individuals involved may be subject to criminal investigation for tax evasion.

Can Foreign Individuals in an FDI Company Face Criminal Liability?

A question frequently raised by foreign investors is:

Can a foreign director or manager be held criminally liable in Vietnam due to the company’s tax issues?

Under Vietnamese law, the answer is potentially yes, but it depends on the individual’s role and level of involvement.

Vietnamese criminal law does not only address corporate liability for commercial entities, but may also consider individual criminal responsibility for persons involved in the conduct.

This means that in some tax evasion cases involving FDI enterprises, the following individuals may be invited to work with investigators:

• Directors or General Directors
• Legal representatives of the company
• Chief accountants
• Individuals directly responsible for financial management

However, being invited to work with investigative authorities does not automatically mean that the individual will be prosecuted.

In many situations, authorities simply need to clarify the responsibilities and roles of each individual in the tax declaration process.

Situations Where Foreigners Are Commonly Requested to Work With Authorities

In practice, foreign clients often seek legal assistance when they encounter situations such as:

• Receiving an invitation letter from police or tax authorities
• Being requested to explain accounting or financial activities of the company
• Being temporarily restricted from leaving Vietnam during an investigation
• The company being subject to criminal investigation for tax evasion

These situations can create significant psychological pressure for foreign individuals, especially when they:

• Do not fully understand Vietnam’s criminal procedure system
• Worry about the possibility of arrest or prosecution
• Are unsure about their legal rights and obligations during investigations

In such circumstances, timely legal advice can help individuals understand their legal position and prepare an appropriate response.

What Should an FDI Company Do When Facing Potential Criminal Tax Risks?

When there are indications of tax evasion or violations of tax declaration obligations, the initial response of the company and individuals involved can significantly affect the development of the case.

Below are several steps commonly recommended by lawyers.

Review Tax and Accounting Records

The first step is to conduct a comprehensive review of the company’s accounting records and tax obligations.

This review helps determine:

• Whether there are actual errors in tax declarations
• Whether the errors are technical mistakes or signs of intentional conduct
• The potential impact on the company’s tax obligations

Early evaluation allows businesses to understand the legal risks before authorities reach formal conclusions.

Prepare a Legal Strategy When Working With Authorities

In cases involving tax evasion allegations against FDI companies, many factors may influence how authorities evaluate the situation, including:

• How the company explains its accounting records
• Whether the company remedies tax consequences
• The level of cooperation with authorities

For this reason, developing a legal strategy from the early stages is extremely important.

A lawyer experienced in criminal and tax matters involving foreign clients can assist by:

• Explaining legal rights and obligations when working with investigators
• Preparing documents and legal explanations
• Protecting the client’s legitimate interests during legal proceedings

(Note: Every case involves different factual circumstances. Legal outcomes depend on many factors specific to each situation.)

The Role of Lawyers When Foreigners Are Involved in Tax Investigations in Vietnam

For foreign individuals, involvement in a criminal investigation in Vietnam often comes with several challenges:

• Differences in legal systems
• Language barriers
• Limited understanding of their legal rights

In such situations, lawyers can serve as:

• A legal bridge between the client and Vietnamese authorities
• A guide to clearly explain the investigation and legal procedures
• Legal representatives who protect the client’s lawful rights under Vietnamese law

In Ho Chi Minh City, DEDICA Law Firm regularly provides legal advice and representation for foreign clients involved in legal matters in Vietnam, including:

• Criminal cases
• Tax and corporate financial issues
• Situations where foreigners are invited to work with authorities or are under investigation

DEDICA’s lawyers have experience working with international clients and understand the difficulties foreigners often face when dealing with the Vietnamese legal system.

Contact DEDICA Law Firm for Professional Legal Support

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