Tax finalisation and entity merger for a trading company

Background

The client distributes household electrical equipment to electrical shops and small contractors in Hanoi and Hai Phong. The owner originally set up two separate companies to serve each market. After eight years the two companies shared a warehouse, a delivery team and most suppliers, so sales between the two entities had grown sharply and every accounting and tax filing had to be prepared twice. The owner decided to merge the Hai Phong company into the Hanoi company and convert it into a branch.

Challenges

• Inventory and intercompany balances did not agree on reconciliation, partly because adjustment invoices had not been recorded.
• The merging company still had uncredited input VAT and accumulated losses from several years.
• Tax finalisation had to be completed before the tax code could be closed, while sales could not be interrupted.
• Contracts with major suppliers and customers had to be transferred to the surviving entity.

Our approach

• Weeks 1–3 — tax review: examined three years of VAT, corporate income tax and personal income tax returns for both companies, listed items needing correction and filed voluntary amendments before the merger.
• Weeks 3–5 — intercompany reconciliation: matched inventory, balances and invoices between the two entities and processed 186 outstanding adjustment invoices.
• Weeks 5–7 — merger documentation: worked with the legal team on the merger agreement, owner resolutions and the plan for transferring assets, employees and contracts.
• Weeks 7–11 — finalisation: prepared the tax finalisation up to the merger date and worked with the supervising tax office on input credits, loss carry-forward as permitted and closure of the tax code.
• Weeks 11–13 — post-merger operations: registered the branch, migrated e-invoicing, unified the product master and set up branch-level reporting.

Results

The merged entity's tax code was closed after 13 weeks. Because self-identified corrections had been filed in advance, no late-payment penalties arose. Sales were not interrupted for a single day. The number of recurring accounting and tax filings was halved, and annual compliance costs fell by about 30%. Transactions between the two markets are now simple transfers between branches rather than sales invoices issued back and forth.

“A merger sounds like a legal exercise, but the most time-consuming part is cleaning up the tax figures on both sides. Do that first and every later step goes more smoothly.” — Mr Ly Gia Hung, Partner, Tax Advisory, Corvane Advisory

Lessons learned

Small businesses with several entities should review their structure periodically, because compliance costs often grow faster than the benefits. Self-review and voluntary amendments before finalisation reduce risk when the tax authority conducts its review. Planning the migration of invoices and contracts early avoids disruption for customers and suppliers.