In this article
An FDI company that keeps its books in VND but borrows from its parent, buys materials and sells in USD will record foreign exchange differences almost every month. Mistakes here distort profit, distort group reporting and can affect the corporate income tax (CIT/TNDN) finalization. This article, prepared by the accounting team at ACCA Consulting Vietnam, walks through a case with illustrative figures so you can see each entry clearly.
1. Two types of exchange differences to distinguish
In practice, FDI accountants deal with two types of differences, each recognized at a different time:
- Realized differences: arise when a foreign currency payable or receivable is settled at a rate different from the rate at which it was recorded. Gains go to financial income (account 515) and losses to financial expenses (account 635).
- Revaluation differences: arise when the company revalues the balances of foreign-currency monetary items (cash, receivables, payables, loans) at the reporting date. The differences are first recorded in account 413 and then transferred under the current accounting regime.
Non-monetary items such as inventory, fixed assets and prepayments are not revalued at the period-end rate. A common mistake is revaluing advances paid to suppliers as well.
2. Illustrative case: a parent-company loan and supplier payables
Company X (hypothetical) is an FDI company keeping its books in VND, with a financial year matching the calendar year. During the year it has two main foreign currency transactions. All exchange rates below are illustrative, not actual rates.
| Transaction | USD amount | Recording rate | Settlement / period-end rate | Difference (VND) |
|---|---|---|---|---|
| Loan received from the parent (03/2026) | 200,000 | 25,000 | 25,400 (revalued 31/12) | -80,000,000 |
| Material purchase, supplier payable (05/2026) | 40,000 | 25,100 | 25,300 (paid 07/2026) | -8,000,000 |
| Export sale, receivable (10/2026) | 30,000 | 25,200 | 25,350 (revalued 31/12) | +4,500,000 |
Entry on paying the supplier
When USD 40,000 is paid, the payable is reduced at the recorded rate (25,100), i.e. VND 1,004,000,000, while the foreign currency deposit is reduced at the actual rate on payment (25,300), i.e. VND 1,012,000,000. The VND 8,000,000 difference is a realized exchange loss: Dr 331: 1,004,000,000; Dr 635: 8,000,000; Cr 1122: 1,012,000,000.
Period-end revaluation entry
At 31 December, the USD 200,000 loan principal is still outstanding. Revaluation: 200,000 × (25,400 − 25,000) = VND 80,000,000; the loan liability increases, so the company records a loss. The USD 30,000 receivable is revalued upwards by VND 4,500,000, a gain. Both amounts are accumulated in account 413, then offset, and the net difference is transferred to account 515 or 635 under the current accounting regime.
Illustrative example based on assumed exchange rates, shown in absolute values; does not reflect actual rates.
View as table
| Loss on loan revaluation | 80,000,000 VND |
| Loss on supplier payment | 8,000,000 VND |
| Gain on receivable revaluation | 4,500,000 VND |
| Net loss (after offset) | 83,500,000 VND |
3. Period-end revaluation process
- 1Prepare a list
List USD balances of cash, receivables, payables and loans by counterparty.
- 2Exclude non-monetary items
Separate out advances paid and received, which are not subject to revaluation.
- 3Select the rate
Determine the rates applicable to assets and liabilities under the current accounting regime, with bank evidence on file.
- 4Calculate and record
Calculate the difference for each item, record it through account 413 and then transfer it.
- 5Reconcile with the group
Compare with the amount the parent records for the intercompany loan to avoid differences on consolidation.
4. Impact on corporate income tax
Accounting and tax do not always treat items the same way. Realized differences related to business operations are generally included in income or expenses when determining taxable income. For differences arising from the period-end revaluation of balances, the CIT rules treat each category of item differently; the company should check the current regulations and make adjustments on the finalization return where necessary.
For a parent-company loan, there are two further issues besides the exchange rate: interest expense between related parties may be capped (see the interest expense cap), and foreign loans must comply with foreign exchange management regulations. A common mistake is recording the entire revaluation loss as a deductible expense without review.
| Mistake | Consequence | Fix |
|---|---|---|
| Revaluing advances paid to suppliers | Misstated expenses, wrong nature of the item | Revalue monetary items only |
| Using one rate for both assets and liabilities | Incorrect differences | Apply the correct rate type to each group |
| Not revaluing intercompany loans | Group reporting does not reconcile | Reconcile balances with the parent quarterly |
| No adjustment at tax finalization | Risk of disallowed expenses and back taxes | Prepare an accounting–tax reconciliation for exchange differences |
5. Tips for managing exchange differences monthly
- Set up the software to pick up the recording rate by transaction date automatically
- Reconcile foreign currency account balances with bank statements in both original currency and VND
- Track USD payables and receivables invoice by invoice to calculate realized differences accurately
- Run a trial revaluation at each quarter-end so group reporting is not surprised at year-end
- Keep the revaluation workbook with exchange rate evidence for the auditor
FAQ
Is monthly revaluation mandatory?
It is mandatory at the financial reporting date under the accounting regime. Many FDI companies revalue monthly or quarterly for group reporting, which is not contrary to the regulations if applied consistently.
Are exchange losses deductible for CIT purposes?
It depends on the type. Realized differences related to business operations are generally deductible, while revaluation differences require checking the current tax rules for each item.
Are advances paid to foreign suppliers revalued?
Usually not, because they are non-monetary items: the company will receive goods or services, not cash back.
Does a company keeping its books in USD have exchange differences?
Yes, but on VND transactions such as payroll, taxes and domestic expenses. See also the article on using USD as the accounting currency.
Review exchange differences before the year-end close
ACCA Consulting Vietnam checks your revaluation workbook, entries and related tax adjustments. Our accounting team in Ho Chi Minh City provides bilingual Vietnamese–English records for FDI companies.
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