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VSCode doesn't support detection of encoding of XML files currently. That is a long standing bug/feature request and multiple issues have been raised and closed as duplicates from each other and other strange reasons. The result is it still doesn't support this pretty basic editor feature and in combination with a lack of support for charset of EditorConfig and a lack of support of file extension specific settings, things easily become pretty difficult to handle especially in legacy projects. So please vote on this issue:
VSCode doesn't support detection of encoding of XML files currently. That is a long standing bug/feature request and multiple issues have been raised and closed as duplicates from each other and other strange reasons. The result is it still doesn't support this pretty basic editor feature and in combination with a lack of support for charset of EditorConfig and a lack of support of file extension specific settings, things easily become pretty difficult to handle especially in legacy projects. So please vote on this issue: