Conditions and Regulations for Recognizing Expenses Incurred Prior to Company Incorporation in Vietnam

A Practical Guide to Recording Pre-Incorporation Expenses for Tax and Accounting Purposes

Launching a business in Vietnam often requires founders to spend money before the company is officially established. These costs may include market research, legal consulting, office rental deposits, business registration fees, branding, software subscriptions, recruitment, and feasibility studies.

A common question among entrepreneurs, foreign investors, and finance teams is:

Can expenses incurred before the company is officially incorporated be recognized as deductible business expenses?

The answer is yes—but only under certain conditions.

Vietnamese accounting and tax regulations allow some pre-incorporation expenditures to be recognized after the company is established, provided that specific legal, tax, and accounting requirements are satisfied.

This guide explains what qualifies as a pre-incorporation expense, the applicable regulations, recognition conditions, required supporting documents, accounting treatment, and common mistakes to avoid.

What Are Pre-Incorporation Expenses?

Pre-incorporation expenses (also referred to as pre-operating or establishment expenses) are costs incurred before a company legally comes into existence.

These expenditures are typically paid by:

• Founders

• Investors

• Parent companies

• Authorized representatives

• Individuals acting on behalf of the future company

Their purpose is to facilitate the formation and commencement of the business.

Common Examples of Pre-Incorporation Expenses

Typical expenses include:

Legal and Registration Costs

• Business registration consulting

• Enterprise registration application fees

• Legal advisory services

• Notarization and translation fees

• Licensing consultation

Office Establishment

• Office lease deposits

• Office renovation

• Furniture purchases

• Office equipment

• Utilities installation

Technology

• Website development

• Domain registration

• Cloud software subscriptions

• Accounting software

• ERP implementation

• Email hosting

Branding and Marketing

• Logo design

• Trademark registration

• Marketing materials

• Corporate identity design

• Initial advertising campaign

Human Resources

• Recruitment costs

• Job advertisements

• Training expenses

• HR consulting

Business Development

• Market research

• Feasibility studies

• Due diligence

• Travel expenses related to company formation

• Professional consulting services

Legal Framework

Recognition of pre-incorporation expenses is governed by several regulations, including:

• Law on Enterprises 2020

• Law on Corporate Income Tax

• Law on Tax Administration

• Accounting Law 2015

• Circular No. 96/2015/TT-BTC (Corporate Income Tax)

• Circular No. 200/2014/TT-BTC (Accounting for Enterprises) or Circular No. 133/2016/TT-BTC, depending on the applicable accounting regime

• Regulations on electronic invoices and supporting documentation

Businesses should also consider the latest guidance issued by the tax authorities where relevant.

Can Pre-Incorporation Expenses Be Recognized?

Yes.

However, recognition is not automatic.

The company must demonstrate that the expenditure:

• Relates directly to establishing or preparing the business.

• Benefits the company's future operations.

• Is supported by valid documentation.

• Complies with accounting and tax regulations.

Failure to meet these conditions may result in the expenses being disallowed during a tax audit.

Conditions for Recognition

To improve the likelihood that pre-incorporation expenses are accepted for accounting and tax purposes, businesses should satisfy the following conditions.

1. The Expense Must Relate to the Company's Business Activities

The expenditure should be directly connected with establishing or preparing the company's operations.

Examples include:

• Company registration

• Office preparation

• Recruitment

• Technology implementation

• Business licensing

• Initial marketing

Personal expenses of founders generally do not qualify.

2. Valid Supporting Documentation Must Be Available

Every expense should be supported by appropriate evidence.

Typical documents include:

• VAT invoices (where applicable)

• Contracts

• Receipts

• Payment vouchers

• Bank transfer records

• Service agreements

• Acceptance minutes

• Purchase orders

Incomplete documentation is one of the most common reasons for tax adjustments.

3. The Expense Should Be Transferred to the Company

Many pre-incorporation expenses are initially paid by founders or investors because the company does not yet have a legal identity or bank account.

After incorporation, these costs should be properly transferred to the company through appropriate legal documentation, such as:

• Expense reimbursement request

• Assignment agreement

• Capital contribution documentation (where appropriate)

• Board resolution or management approval

• Accounting records supporting the transfer

Maintaining a clear audit trail helps demonstrate that the company ultimately bears the cost.

4. Payments Should Comply with Tax Regulations

For expenses subject to payment conditions under tax regulations, businesses should ensure that payment methods satisfy applicable requirements.

For example, where regulations require non-cash payment as a condition for deductibility or VAT credit, payment should be made through acceptable banking channels.

5. The Expense Must Not Be Prohibited

Certain expenditures remain non-deductible regardless of when they are incurred.

Examples may include:

• Personal living expenses

• Fines and penalties

• Unsupported cash expenditures

• Expenses unrelated to business activities

• Other non-deductible items prescribed by tax regulations

Required Supporting Documents

A complete documentation package strengthens the company's position during tax inspections.

Typical supporting documents include:

Document	Purpose
VAT invoice or sales invoice	Evidence of purchase
Service contract	Defines the services provided
Bank payment record	Demonstrates payment
Receipt or payment voucher	Additional proof of payment
Company incorporation documents	Confirms the company was subsequently established
Expense reimbursement documentation	Transfers founder-paid costs to the company
Management approval	Supports recognition of the expenditure

The more complete the documentation, the lower the tax risk.

Accounting Treatment

The accounting treatment depends on the nature of the expenditure.

Revenue Expenses

Ordinary operating costs that do not create long-term assets are generally recognized as operating expenses in accordance with the applicable accounting standards and accounting regime.

Examples include:

• Consulting fees

• Recruitment expenses

• Initial marketing

• Training

Capital Expenditures

Expenditures resulting in qualifying long-term assets may be capitalized if they satisfy the relevant recognition criteria.

Examples include:

• Office equipment

• Machinery

• Computer systems

• Furniture

• Software licenses meeting capitalization requirements

These assets are subsequently depreciated or amortized in accordance with applicable accounting regulations.

VAT Considerations

Input VAT may only be creditable where all statutory conditions are satisfied.

Businesses should ensure:

• Valid VAT invoices are obtained.

• The expense relates to taxable business activities.

• Payment conditions (where applicable) are met.

• Required tax documentation is retained.

Failure to satisfy these conditions may result in the denial of input VAT credits.

Common Expenses That Are Usually Acceptable

Examples include:

• Company registration consulting

• Legal advisory fees

• Accounting consulting

• Initial office rent

• Office renovation

• Computers

• Printers

• Website development

• Accounting software

• ERP implementation

• Recruitment

• Trademark registration

• Initial marketing campaign

Acceptance always depends on supporting evidence and compliance with tax regulations.

Expenses That May Be Challenged

Tax authorities may scrutinize expenses such as:

• Personal travel unrelated to business

• Luxury consumption

• Family expenses

• Entertainment lacking business justification

• Unsupported cash payments

• Purchases without valid invoices

• Costs unrelated to future business operations

Proper documentation is essential.

Best Practices

Keep Every Invoice

Even before incorporation, founders should retain all invoices, contracts, receipts, and payment records.

Use Bank Transfers Where Appropriate

Electronic payment provides stronger evidence than cash transactions and may be required for certain tax treatments.

Record the Business Purpose

Maintain written explanations describing how each expenditure supports the company's future operations.

Separate Personal and Business Expenses

Founders should avoid mixing personal expenditures with business-related costs.

Consult Professional Advisors

Significant establishment costs should be reviewed by accountants or tax advisors to ensure compliance with accounting and tax regulations.

Common Mistakes to Avoid

Many businesses encounter tax adjustments because they:

• Lose original invoices.

• Pay suppliers without proper documentation.

• Mix personal and business expenses.

• Fail to reimburse founders correctly.

• Assume every pre-incorporation expense is deductible.

• Ignore VAT requirements.

• Do not maintain an adequate audit trail.

Implementing sound documentation practices from the outset significantly reduces these risks.

Frequently Asked Questions

Can expenses incurred before incorporation be recognized?

Yes, provided they relate to the company's business, are supported by valid documentation, and comply with applicable accounting and tax regulations.

Can founders pay expenses before the company exists?

Yes. Founders commonly incur establishment costs before incorporation. After the company is formed, these expenses should be appropriately transferred or reimbursed with supporting documentation.

Can VAT be claimed on pre-incorporation expenses?

Potentially, but only if all statutory conditions for input VAT credit are satisfied, including valid invoices and compliance with payment requirements where applicable.

Are all pre-incorporation expenses deductible?

No. Only expenses that meet the conditions prescribed by Vietnamese tax and accounting regulations may be recognized for accounting purposes and considered deductible for corporate income tax purposes.

Conclusion

Pre-incorporation expenses are a normal part of establishing a business in Vietnam. While many of these costs can ultimately be recognized by the company, doing so requires careful attention to legal, accounting, and tax requirements.

By maintaining complete documentation, ensuring expenses are directly related to business activities, using appropriate payment methods, and properly transferring founder-incurred costs to the company, businesses can improve compliance and reduce the risk of tax adjustments during future inspections.

Good record-keeping from the very beginning of the business journey not only supports tax compliance but also provides a solid financial foundation as the company grows.

---

Q&A:

If founder pays an invoice exceeding 5 mil vnd by cash prior to company incorporation, then the company reimbursed it through bank to the founder, is the invoice eligible for VAT deduction?

Short answer: Generally, no. In the scenario you described, the invoice would generally not be eligible for input VAT deduction if the founder paid the supplier in cash for an invoice of VND 5 million or more (including VAT). The company's later reimbursement to the founder by bank transfer does not change the fact that the original payment to the supplier was made in cash.

Your scenario

Event	VAT implication
Founder pays supplier in cash before incorporation	❌ Does not satisfy the non-cash payment condition (for invoices meeting the threshold).
Company is incorporated later	Neutral. Incorporation itself does not cure the payment method issue.
Company reimburses the founder by bank transfer	❌ The reimbursement is not the payment to the supplier and does not replace the required non-cash payment evidence.

Why?

Since 1 July 2025, Vietnam's VAT rules generally require non-cash payment for purchases of goods or services with an invoice value of VND 5 million or more (including VAT) in order to claim input VAT.

The critical payment is:

Buyer (or an authorized payer) → Supplier

The subsequent reimbursement:

Company → Founder

is a separate transaction. It does not convert an original cash payment into a qualifying non-cash payment for VAT purposes.

What if the founder paid by bank transfer instead?

This is a different outcome.

If the founder was effectively paying on behalf of the future company, and:

• the supplier was paid by bank transfer (not cash),

• the company retains the invoice and supporting documents,

• there is evidence explaining that the founder incurred the cost for the company's establishment (such as a founder's resolution, reimbursement request, or other internal documentation), and

• the company reimburses the founder through its bank account,

then the payment is much more likely to satisfy the non-cash payment requirement, subject to the detailed conditions in the VAT regulations. The rules also recognize certain authorized-payment arrangements when properly documented.

Can the expense still be deductible for Corporate Income Tax (CIT)?

Possibly, but this is a separate analysis.

Even if the input VAT is not deductible because the payment condition is not met, the underlying expense may still be deductible for CIT if it satisfies the applicable CIT requirements (business purpose, valid supporting documents, and other statutory conditions). Whether it qualifies depends on the specific facts and the applicable tax rules. It should not be assumed automatically.

Practical recommendation for founders

If you expect a company to be incorporated soon and need to incur establishment costs:

• Avoid paying suppliers in cash for invoices at or above the regulatory threshold.

• Pay suppliers by bank transfer (or another qualifying cashless method) whenever possible.

• Keep all invoices, contracts, payment evidence, and reimbursement documents.

• Have the company reimburse the founder through the company's bank account after incorporation.

• Maintain a clear paper trail showing that the founder paid the expense on behalf of the company.

Following this approach provides the strongest basis for supporting both VAT and CIT treatment during a tax audit.