Determining the fiscal year of a newly established enterprise according to regulations helps facilitate tax and accounting. Determining the fiscal year of a newly established enterprise is an important first step in accounting and tax declaration. Understanding “Determining the fiscal year of a newly established enterprise”, “enterprise fiscal year”, “newly established enterprise” helps ensure legal compliance and optimize operations.
What is the fiscal year for newly established businesses?
The fiscal year is the period used to calculate and report a company’s financial performance, including income and expenses. For newly established businesses, identifying the fiscal year at the outset is critical, as it affects the preparation of financial statements, tax filing timelines, and the entire accounting operation. Under current Vietnamese regulations, a fiscal year typically spans 12 months and may either coincide with the calendar year or begin in any month, depending on the company’s choice and approval by the tax authority.
Legal regulations on fiscal year for businesses in Vietnam
1. Definition of fiscal year according to current Accounting Law
According to Article 3 of the 2015 Accounting Law, a fiscal year is a continuous 12-month accounting period. Normally, the fiscal year starts on January 1 and ends on December 31. However, businesses may choose a fiscal year different from the calendar year, provided they notify and obtain approval from the tax authority.
2. Regulations on selecting fiscal year for newly established businesses
Newly established companies are allowed to set a fiscal year beginning on any chosen date. However, the first fiscal year must not exceed 15 months in total. For example, if a business is established in October, it may choose to end its fiscal year in December of the following year, totaling 15 months—only applicable to the first year.
3. Cases where businesses must change their fiscal year
Certain situations require a company to change its fiscal year, such as mergers, demergers, changes in the legal form of the enterprise, or upon request by tax authorities. In such cases, the business must submit a formal request to the local tax office for approval.
Comparison between calendar year and customized fiscal year
1. Pros and cons of each option
Calendar year: This aligns with standard practice, making it easier to prepare financial reports and coordinate with tax authorities. However, it may lack flexibility for businesses with unique operational cycles.
Customized fiscal year: Offers flexibility, especially for companies with seasonal operations. It allows for better financial planning and cash flow alignment but requires registration and approval by tax authorities.
2. Which businesses should choose a non-calendar fiscal year?
Companies with seasonal business models or those operating in import-export industries often prefer a non-calendar fiscal year. Choosing a fiscal year that aligns with business cycles helps optimize cash flow and improves the accuracy of financial planning.
Impact of fiscal year selection on accounting and tax
1. Impact on financial statement preparation
The chosen fiscal year determines the end of the accounting period, which affects the timing of annual financial reporting. If the fiscal year does not match the calendar year, businesses must prepare their reports based on the fiscal year end, avoiding confusion with standard reporting periods.
2. Relation to tax finalization and declaration deadlines
During the calendar year, companies are still required to declare and pay Value-Added Tax (VAT) and Personal Income Tax (PIT) monthly or quarterly, and finalize PIT annually.
Tax authorities will use the declared fiscal year to set deadlines for submitting financial statements and Corporate Income Tax (CIT) finalization forms. The deadline for submitting these documents is within 90 days from the fiscal year-end. Failure to comply may result in administrative penalties or tax arrears.
Defining the fiscal year for a newly established company is a foundational step in accounting, taxation, and business governance. Companies should carefully consider the most appropriate start of their fiscal year based on operational specifics while strictly adhering to legal regulations. This strategic planning not only facilitates efficient accounting but also lays the groundwork for long-term sustainable growth.
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