In the nowadays dynamic business environment, financial management plays a crucial role in the survival, stability, and growth of a company. Consequently, companies today are paying a considerable attention to how to optimise financial management for companies. Beyond financial tasks such as budget management, cash flow management, business valuation, cost and performance analysis, etc., effectively managing legal risks in business operations significantly contributes to risk reduction and minimises financial losses, ultimately aiding in financial optimisation. This article provides insights into legal considerations that can help companies minimise financial losses and enhance overall cost management.
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Mitigating risks in capital mobilisation
In the pursuit of expanding their business operations, companies often mobilise capital through various sources, such as borrowing from parent companies, obtaining loans from credit institutions, or increasing charter capital by attracting additional capital contributions from other organisations and individuals. Adhering to legal regulations throughout the capital mobilisation process is crucial for successful transactions, yet this aspect sometimes lacks attention from relevant parties. Failure to comply with legal regulations during capital mobilisation can lead to hidden legal risks, resulting in disputes that require significant time and expenses to resolve. Furthermore, non-compliance with legal provisions and procedures during capital mobilisation may subject companies to high administrative fines, causing substantial financial damage. For instance, according to Article 3.3 and Article 23.3 of Decree 88/2019/ND-CP, administrative fines can amount up to VND 60 million if a company fails to properly register foreign medium and long-term loans in accordance with the prevailing laws. Additionally, disputes among relevant parties in investment activities can also incur substantial costs in terms of time and money, such as conflicts related to share purchase agreements, capital contribution contracts, and loan agreements.
Therefore, in addition to the concern for investment attraction, companies also need to take a comprehensive approach to potential legal risks to promptly identify, minimise, and ultimately eliminate these risks. By doing so, companies can optimise their financial management by avoiding the payment of fines, dispute resolution costs, and other related damages.
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Optimising workforce efficiency of employees
When considering how to optimise financial management for companies, the majority often focus on cost optimisation. Relating to cost optimisation, many of the leaders typically prioritise immediate concerns such as reducing labour costs and finding more affordable suppliers, ect. Meanwhile, some companies may not be attentive to the critical importance of managing workforce efficiency in accordance with legal regulations. While some enterprises are concerned about this issue, they may adopt agrresive methods, such as requiring employees to work extra hours without overtime pay or unilaterally terminating employment contracts unlawfully. This can lead to legal sanctions or labour disputes that companies may have to face.
To replace the mentioned approaches, companies can utilise a Performance Evaluation Policy (“Policy”) to manage the workforce’s performance and lawfully terminate employment contracts for those not meeting job requirements. Specifically, according to Article 36.1(a) of the Labour Code 2019, employers have the right to unilaterally terminate employment contracts if employees consistently fail to complete their work according to the criteria set in the employer’s Performance Evaluation Policy. The Performance Evaluation Policy is issued by the employer but must involve the opinions of the labour union representative organisation at the grassroots level where such an organisation exists.
In addition to utilising the Policy as a legal basis for companies to lawfully unilaterally terminate employment contracts when employees fail to meet job completion requirements, companies can also leverage the Policy for screening individuals lacking competence and responsibility in their work. The introduction of the Policy prompts employees to face the possibility of contract termination if they fail to meet the goals set by the company, thereby motivating them to work more diligently and reducing stagnation and inefficiencies in their tasks. The development and implementation of such Policy in recent years have become increasingly prevalent in managing companies in Vietnam.
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Optimising tax liabilities
The optimisation of tax obligations consistently stands out as a primary concern for companies. Regrettably, certain companies resort to tax evasion practices in an attempt to alleviate their tax burdens. Tax evasion encompasses illicit actions, including the illegal non-payment of taxes or reduction of the amount owed. Upon detection, companies expose themselves to the risk of accumulating tax arrears and facing substantial penalties, which could potentially amount to billions of Vietnamese dong. Individuals found guilty may be subject to imprisonment, while companies might encounter business prohibitions, industry-specific restrictions, or capital mobilisation bans lasting from one to three years.
In seeking solutions to the questions how to optimise financial management for companies, the strategic optimisation of tax liabilities emerges as an effective measure. While tax evasion constitutes a legal violation, subject to administrative penalties or criminal charges upon discovery, optimising tax liabilities represents a legal and encouraged practice by government authorities. The key question is how to optimise tax liabilities while ensuring strict compliance with tax regulations and laws? In reality, companies might be paying more taxes than necessary due to accounting discrepancies, potential optimisation of business expenses, or overlooked tax incentives. Therefore, optimising tax liabilities allows companies to efficiently and legally reduce costs rather than resorting to tax evasion. To optimise tax liabilities, companies should invest time in analysing and evaluating their management systems. Through this process, they can identify cost-saving solutions, establish robust management reporting systems, improve processes and standards, audit and refine tax reporting documentation, enhance revenue streams, and reassess potentially overlooked tax incentives. Furthermore, companies should focus on defining organisational strategies, ownership models, investment regions, and industries to plan revenue, costs, and tax benefits. Additionally, a critical aspect is the recruitment and development of a skilled accounting team, leveraging technology to achieve high efficiency in compliance with legal tax regulations. To meet the condition of “compliance with legal regulations” while optimising tax liabilities, companies need to have a comprehensive understanding of current legal provisions, especially tax laws governing relevant taxes, and follow applicable guidelines to derive favorable outcomes for their operations.
In addition, businesses can seek the assistance of tax consulting organizations to access services such as tax advisory, support in complying with legal regulations related to crucial taxes like corporate income tax, personal income tax, value-added tax, and foreign contractor tax. These organizations can also keep businesses informed about the latest changes in tax laws. By doing so, businesses can identify the most effective methods to organize their operations for the optimal optimization of tax liabilities.
The above is an overview of how to optimise financial management for companies. If you have difficulties in finding a Law Firm to advise and support in the relevant legal field, please contact us. Phuoc & Partners is a professional consulting firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms specialising in business law in Vietnam that has leading practice areas in the legal market such as Labour and Employment, Taxation, Merger and acquisition, Litigation. We are confident in providing Clients with optimal and effective service.
