Circular 118 Gives VIFC Members an IFRS Election From 2027

The Ministry of Finance has issued Circular No. 118/2026/TT-BTC, which takes effect January 1, 2027, and gives VIFC members the right to prepare financial statements under unmodified IFRS rather than Vietnam Accounting Standards. The instrument implements Clause 5, Article 3 of Decree No. 324/2025/ND-CP — the VIFC financial-policy decree that promised this right in December 2025 — and closes the most immediate practical gap for international financial groups evaluating VIFC entry.

What the Circular Does#

Circular 118 creates a distinct accounting track for VIFC members: opt in, prepare under IFRS exactly as issued by the IASB, and submit IFRS financial statements to the VIFC Executive Board, the VIFC Supervisory Authority, and relevant Vietnamese competent authorities. Reporting deadlines follow Vietnamese accounting law, not IFRS-specific timelines.

Three features of the framework are worth noting carefully.

Unmodified IFRS, not an IFRS-aligned variant. Many emerging-market jurisdictions adopt IFRS with local carve-outs — exceptions for specific standards, deferred effective dates, or domestic modifications. Circular 118 permits none of that. Members apply IFRS exactly as issued. For a global bank or fund manager consolidating a VIFC subsidiary into group accounts, this is the operative fact: the VIFC subsidiary's statements are prepared on the same basis as the rest of the group, with no reconciliation exercise required.

Optional, not mandatory. The circular establishes an elective right, not a requirement. Members that lack the internal capability or prefer to remain on VAS may do so. Adoption is conditional on the member having "the need, capability, and resources" to apply IFRS — language that signals MoF expects self-selection by institutions with genuine international reporting obligations, not a blanket switch by smaller domestic-oriented members.

Consistency once elected. A member that elects IFRS must apply it for the full fiscal year. Any change of accounting basis — into or out of IFRS — is only permitted at the start of a new fiscal year. This prevents mid-year switching for selective reporting purposes.

The Tax Constraint#

The single most important limitation in Circular 118 is this: IFRS applies to financial statement preparation only. Tax obligations continue to be calculated under Vietnamese tax law. IFRS does not change the tax base.

This matters because IFRS and VAS diverge in ways that produce different taxable-income figures. IFRS 16 (leases) capitalises operating leases on the balance sheet; VAS does not. IFRS 9 (financial instruments) uses expected-credit-loss provisioning that can front-load expenses relative to VAS provisioning rules. Institutions that entered VIFC planning analysis hoping IFRS adoption would compress their Vietnamese tax exposure — through lease accounting differences or fair-value treatment of financial instruments — will find that the tax calculation remains anchored to Vietnamese tax law.

This design is deliberate and follows the approach Vietnam's IFRS roadmap has taken for listed companies more broadly: financial reporting and tax compliance run on separate tracks. Circular 118 extends that separation into the VIFC but does not create a new avenue for tax arbitrage.

The Regulatory Chain#

Circular 118 sits at the bottom of a three-layer stack:

Resolution 222/2025/QH15 (June 27, 2025) — the National Assembly resolution establishing the VIFC framework and authorising special operating conditions, including accounting flexibility.

Decree No. 324/2025/ND-CP (December 18, 2025) — the VIFC financial-policy decree, whose Clause 5 of Article 3 created the enabling right for IFRS adoption by VIFC members. As we covered when Decree 324 was issued, that clause was a placeholder pending an implementing instrument.

Circular 118/2026/TT-BTC — the operational instrument that specifies who qualifies, how to elect, what rules apply, and what the limits are. This is the instrument that makes the right functional.

First-Time Adoption and the IFRS 1 Exercise#

Entities switching from VAS to IFRS must follow IFRS 1 (First-time Adoption of International Financial Reporting Standards), including the comparative disclosure requirements. This is a substantive exercise. IFRS 1 requires a restated opening balance sheet at the transition date and comparative prior-period figures prepared on an IFRS basis — which typically means working back through at least one full financial year.

For a VIFC member targeting a January 1, 2027 adoption date, the practical preparation window is now. A first-time adoption under IFRS 1 requires identifying all recognition and measurement differences between the entity's existing accounting basis and IFRS, electing available exemptions, and preparing a transition-date balance sheet. For banks and fund managers with complex financial instrument portfolios, the IFRS 9 transition alone — reclassifying assets into the hold-to-collect, hold-to-collect-and-sell, and fair-value-through-P&L buckets, and recalculating expected credit loss provisions — can take several months of dedicated technical work.

Circular 118 does not indicate whether MoF will issue supplementary implementation guidance analogous to an IFRS adoption roadmap, or whether entities must navigate the IFRS 1 exercise independently. That remains an open question.

The Public Registry#

MoF's Accounting and Auditing Supervisory Department will maintain and publish a public list of all entities applying IFRS under Circular 118, updated within 15 days of any notification from a member entity.

This registry has a secondary function beyond administrative record-keeping. A publicly visible list of IFRS adopters within the VIFC creates a transparency signal — counterparties, institutional investors, and audit firms can identify which members publish internationally comparable financial statements and which do not. Over time, this could influence counterparty credit decisions and institutional investor comfort in ways that the opt-in framing alone does not.

What This Means for International Groups#

For multinational financial institutions with a VIFC subsidiary in the application pipeline, the practical impact of Circular 118 is reduction of ongoing compliance cost. Without it, a VIFC subsidiary would need to maintain a parallel VAS ledger alongside its IFRS group reporting — a cost borne by every foreign bank and fund manager with a Vietnam operation today. Circular 118 removes that requirement for the VIFC entity, at least for financial statement purposes.

The same dynamic applies to audit firms: those with international IFRS practices gain a clearer mandate at the VIFC, while firms whose Vietnam capability is predominantly VAS-oriented face the competitive pressure that international-standards adoption has created elsewhere in the region.

The gap the circular does not close is US GAAP. Circular 118 applies to IFRS only. US-corridor firms — American asset managers, broker-dealers, and banks whose group accounts are prepared under US GAAP — receive no equivalent relief. Whether a future instrument will extend optionality to US GAAP is not signalled in Circular 118 or its enabling decree.

Where the VIFC Now Stands Against Peer IFCs#

DIFC (Dubai), AIFC (Astana), and GIFT City (Gujarat) all permit or require IFRS for regulated entities within their zones. This has been a standard feature of the IFC model since the DIFC's founding in 2004 — one that the VIFC vs. peer IFC comparison identified as a gap in Vietnam's framework. Circular 118 closes it.

The closing of this gap matters less as a symbolic alignment and more as a practical signal to the international institutions currently conducting VIFC due diligence. Accounting standards are a compliance infrastructure question, not a headline incentive — but for the treasury, finance, and reporting teams of any large financial group assessing the cost of VIFC entry, the ability to run a single IFRS ledger rather than two parallel accounting regimes is a concrete operational simplification.

What to Watch#

The public MoF registry of IFRS adopters will be the first real-world indicator of uptake. An opt-in regime is only as useful as the number of entities that use it: a registry of five institutions by mid-2027 would suggest the capability condition is excluding more members than anticipated, or that the IFRS 1 transition burden is heavier than the instrument acknowledges. A registry of thirty would suggest the right is genuinely accessible.

The unresolved question of supplementary implementation guidance — whether MoF's Accounting and Auditing Supervisory Department will publish transition support materials before the January 1, 2027 effective date — will determine whether VIFC members with smaller finance teams can realistically complete the IFRS 1 exercise in time. Institutions currently in the VIFC application pipeline should treat the absence of that guidance as a planning risk and begin the IFRS 1 scoping exercise now rather than waiting for official materials that may not arrive before year-end. VIFC Insight will update this article as MoF publishes supplementary implementation guidance.