LAW NO. 56/2024/QH15: ADMINISTRATIVE PENALTIES IN THE FIELD OF AUDITING INCREASED BY 20 TIMES COMPARED TO CURRENT REGULATIONS.

In the previous issue, ATA Legal Services mentioned new points of Law No. 56/2024/QH15 (“Law No. 56”) on the Securities Law, analyzed and evaluated these provisions. In this next part, ATA will update and analyze another new and notable points related to the Law on Accounting, the Law on Independent Auditing, the Law on Tax Administration and the Law on Personal Income Tax.

I. Contents of amendments to the Law on Accounting: Supplementing regulations on the rights of accountants

In addition to the right to independence in accounting expertise and practice, Law No. 56 supplements rights to exempt accountants from liability, specifically adding the following rights: “reserve professional opinions in writing when there is an opinion different from the opinion of the decision maker; report in writing to the chief accountant or legal representative of the accounting unit when detecting violations of the law on finance and accounting in the unit; report to the immediate superior of the person who made the decision or the competent State agency and will not be responsible for the consequences of implementing that decision in case the decision must still be complied with”.

II. Contents of amendments to the Law on Independent Audit:

1. An auditor shall not be assigned to sign the audit report for an audited unit for more than 5 consecutive years.

In case of signing an audit contract with an auditing firm for more than 5 consecutive years, the auditing firm must be requested to change the auditor signing the audit report.

An auditor of an auditing firm shall not be assigned to perform an audit for a public interest entity for more than 5 consecutive years.

The suspension period, for auditors to continue signing audit reports for the same unit / audited public interest unit after the end of such period, will follow the guidance of the Ministry of Finance.

2. All large-scale enterprises will have to have their annual financial statements audited:

Previously, according to the old regulations, the subject as enterprises had to conduct independent audits of financial statements which only included: (1) Enterprises with foreign investment capital; (2) Credit institutions; (3) Financial institutions, insurance and insurance brokerage enterprises; (4) Public companies, securities issuing organizations and trading organizations.

Law No. 56, amending the Law on Independent Audit, has supplemented a mandatory provision that all large-scale enterprises must have their financial statements audited. This provision is considered to be suitable to the current practical situation where there are many enterprises with total assets and revenue of thousands of billions with great influence on the market in general but are not listed companies, public companies and do not have to have their financial statements audited. This causes many inadequacies, potential risks and instability for investors and the market. This provision will help strengthening inspection and supervision of business activities of influential enterprises in the market, avoid fraud and negative impacts on the market.

The basis, for determining whether an enterprise is considered as large-scale or not, will follow Government guidance.

3. Increasing the maximum penalty and statute of limitations for administrative violations in the field of independent auditing

Law No. 56 amends a number of articles of the Law on Independent Audit, accordingly, the content on handling violations of the Law on Independent Audit has a notable new point. Instead of prescribing the penalties rate and maximum processing time for administrative violations in each decree as before, this amendment has supplemented provisions on maximum processing time and penalties rate in the Law on Independent Audit. Accordingly, the penalties rate and maximum processing time under the new regulations are increased significantly compared to the old penalties rate prescribed in Decree 41/2018/ND-CP on penalties for administrative violations in the field of accounting and independent auditing ("Decree No. 41"). In detail as follows:

4. An auditing firm with branches must have at least five auditors registered to practice at the head office, excluding branches:

According to the Law No. 56, auditing firms with branches must meet the condition of having at least five auditors registered to practice at the head office, not including the number of practicing auditors registered at branches. This provision is also a new point different from the old content of the Law on Independent Audit 2011. According to the previous regulation, auditing firms were only required to have at least five practicing auditors, of which at least two must be capital contributors. This regulation does not distinguish between the number of auditors at the head office and branches to help increasing the transparency of the regulation and ensuring the operating conditions of auditing organizations.

III. Contents of amendments to the Law on Tax Administration and the Law on Personal Income Tax:

1. All foreign suppliers, conducting business activities in Vietnam, are required to register, declare and pay taxes:

Previously, according to the provisions of the Law on Tax Administration 2019, the law only stipulated the obligation to directly proceed or delegate the registration, declaration and payment of taxes in Vietnam for foreign suppliers who do not have a permanent establishment in Vietnam but have business activities in Vietnam. However, according to the amendments in Law No. 56, the obligation to register, declare and pay taxes is applied to all foreign suppliers conducting E-commerce business, digital platform-based business and other services regardless of whether the supplier has a permanent establishment in Vietnam or not. This provision, when effective, will contribute to protecting national interests and avoiding tax losses.

2. E-commerce platforms are obliged to deduct, declare and pay taxes on behalf of sellers:

According to the new regulations, organizations, as E-commerce trading floor managers, digital platform managers with payment functions (including domestic and foreign organizations) and organizations with other digital economic activities, are obliged to deduct, pay taxes on behalf of, and declare deducted taxes for business households and individuals with business activities on E-commerce and digital platforms.

Households and individuals doing business, not eligible for having tax deducted and paid by others, shall have the obligation to register, declare and pay tax directly to the tax authority.

This regulation makes it easier for tax authorities to manage E-commerce transactions, where the number of transactions is huge and difficult to control due to a large number of individuals or business households participating in the sale. Requiring E-commerce platforms to deduct, declare and pay taxes on behalf of sellers will reduce tax evasion and improve tax collection efficiency.

3. Abolishing the regulation on the right to calculate interest on the amount of tax overpaid by taxpayers:

According to the old provisions of the Law on Tax Administration, the law allows taxpayers to request tax authorities to pay interest at the rate of 0.03%/day calculated on the amount of overpaid tax, late payment, and fines. The source of interest payment is paid from the central State budget. Law No. 56 has abolished the provisions on calculating interest on overpaid tax and fines. Therefore, from January 1, 2025, taxpayers will only receive back the amount they have overpaid and will no longer have the right to request tax authorities to calculate interest on that amount.

Law No. 56 takes effect from January 1, 2025. The provisions on the number of practicing auditors and mandatory audit obligations of large-scale enterprises will take effect from January 1, 2026. The provisions on the obligation to deduct, declare and pay taxes on behalf of sellers of E-commerce trading floors will take effect from April 1, 2025.