Do not let a late tax payment penalty affect the image, reputation, and long-term stability of your FDI enterprise in Vietnam. In this article, from the in-depth perspective of KMC experts, we provide a comprehensive guide on accounting for late tax payment penalties, helping your enterprise avoid unnecessary risks and ensure transparency in all financial reporting.
What Is Late Tax Payment Penalty and How Is It Calculated?
Late tax payment penalty is an additional amount that taxpayers must pay to the state budget when failing to fulfill tax payment obligations within the prescribed deadline. It is calculated based on the outstanding tax amount and the number of days of late payment.
Latest formula for calculating late tax payment penalty
Pursuant to Article 59 of the Law on Tax Administration No. 38/2019/QH14 and guiding documents, the penalty is calculated uniformly as follows:
Late payment penalty = Outstanding tax amount × 0.03% × Number of late payment days
Detailed explanation of the formula components:
- Outstanding tax amount is the actual tax debt owed to the state budget after the statutory due date. The taxpayer is responsible for determining and paying this amount. In cases where the tax amount is adjusted downward after amended declarations or tax inspections, the late payment penalty will be adjusted accordingly.
- 0.03% per day interest rate is the fixed late payment interest rate stipulated under the 2019 Law on Tax Administration, applicable to all types of taxes, fees, and charges subject to late payment.
- Number of late payment days is calculated continuously, including weekends and public holidays. The calculation period starts from the day immediately after the tax payment deadline and ends on the day immediately before the actual payment date to the state budget.
Illustrative example for FDI enterprises:
Company A Ltd. has VAT payable for March 2024 of VND 200,000,000. The payment deadline is April 20, 2024. However, the company makes the payment on April 28, 2024.
Number of late payment days: From April 21 to April 27 = 7 days.
Late payment penalty:
200,000,000 VND × 0.03% × 7 = 420,000 VND.
Accounting Principles for Late Tax Payment Penalties for FDI Enterprises
General accounting principle: clear separation of two items
First of all, accountants must clearly distinguish between tax arrears/underpaid tax and late tax payment penalties. These two items are fundamentally different in nature and in accounting treatment.
Tax arrears/underpaid tax refer to actual tax obligations that arise but have been under-declared or incorrectly declared by the enterprise. This amount directly affects current corporate income tax expense (Account 821) of the period in which the error occurs.
Late tax payment penalties are administrative sanctions for non-compliance with tax payment deadlines. According to regulations, this type of expense is not deductible when determining taxable income for corporate income tax purposes (Article 4, Circular 78/2014/TT-BTC). Therefore, it must be recorded under Account 811 – Other expenses.
Accounting Principles for Tax Assessment and Late Tax Payment Penalties
Upon receiving a tax assessment decision, accountants must evaluate the materiality of the error to determine the appropriate treatment, in accordance with Vietnamese Accounting Standard No. 29 (VAS 29) – Changes in Accounting Policies, Accounting Estimates and Errors.
- If the error is material, the enterprise must apply retrospective adjustment. This means restating the financial statements of the year in which the error occurred, as if the error had never happened.
- If the error is not material, a non-retrospective adjustment is applied, whereby the entire impact of the error is recorded in the period in which the error is identified (current year).
Accounting principles for late tax payment penalties
Late tax payment penalties are recognized as expenses in the period in which the penalty decision is received, regardless of materiality. These penalties are not subject to retrospective adjustment because they do not arise from errors in revenue or expense recognition, but rather from the consequence of late fulfillment of tax obligations.
The recognition period is the financial year in which the enterprise receives the tax authority’s penalty notice/decision.
The accounting account used is Account 811 – Other expenses.
Example:
On 12 May 2024, Company XYZ Ltd. receives a tax inspection decision for the year 2021 with the following contents:
- Corporate income tax underpaid: VND 700,000,000
- Late tax payment penalty: VND 135,000,000
Correct accounting treatment:
For the VND 700 million CIT underpayment:
The accountant assesses this as a material error.
Treatment: Apply retrospective adjustment to the 2021 financial statements, increasing current corporate income tax expense and recognizing tax liabilities for 2021.
For the VND 135 million late payment penalty:
Record in 2024 (the year the decision is received).
Journal entry:
Dr Account 811 – Other expenses: 135,000,000 VND
Cr Account 3339 – Other taxes and payable amounts: 135,000,000 VND
This amount is not retrospectively adjusted into 2021 expenses.
When paying the penalty:
Dr Account 3339 / Cr Account 111, 112
Vietnam’s business environment is highly dynamic; therefore, late tax payments may create significant risks in financial management and corporate compliance systems. If you are not fully familiar with local regulations, you should cooperate with a reliable tax advisory partner with deep expertise in Vietnamese tax law and international governance practices such as KMC. We provide alert systems and support you in building accurate accounting treatment processes for complex transactions such as retrospective adjustments and foreign exchange accounting.
