Are depreciation expenses of fixed assets during a business suspension considered deductable expenses in Vietnam?

Are depreciation expenses of fixed assets during a business suspension considered deductable expenses in Vietnam?

According to Article 6 of Circular 78/2014/TT-BTC (amended by Article 4 of Circular 96/2015/TT-BTC), the following provisions are stipulated:

Expenses that are deductible and non-deductible when determining taxable income

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2. Non-deductible expenses when determining taxable income include:

2.2. Depreciation expenses for fixed assets in the following cases:

a) Depreciation expenses for fixed assets not used for the production, business of goods, services.

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e) Specific cases are determined as follows:

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- In the case where fixed assets owned by the enterprise are used for production and business but need to be temporarily halted due to seasonal production with a suspension period of less than 9 months; temporarily halted for repair, relocation, maintenance, regular servicing with a suspension period of less than 12 months, and thereafter, the fixed assets continue to be used for production and business activities, during that suspension period, the enterprise is allowed to depreciate, and the depreciation expenses for fixed assets during the suspension period are included in deductible expenses when determining taxable income.

The enterprise must maintain and provide sufficient documentation and reasons for the temporary halt of fixed assets when required by the tax authority.

Based on the above regulation, the depreciation expenses of fixed assets of an enterprise when suspending operations can still be considered reasonable expenses if certain conditions are met.

Specifically, the fixed asset must be owned by the enterprise and used for production and business but temporarily halted due to:

- Seasonal production with a suspension period of less than 9 months.

- Periodic repair, relocation, maintenance, servicing with a suspension period of less than 12 months.

In the aforementioned cases, if the fixed assets continue to be used for production and business activities after the suspension period, the depreciation expenses for fixed assets during the suspension period will be included in deductible expenses when determining taxable income.

However, the enterprise needs to maintain sufficient documentation and reasons for the temporary halt to provide to the tax authority upon request.

Are depreciation expenses of fixed assets during a business suspension considered deductable expenses in Vietnam? (Image from the Internet)

What are the methods of depreciation of fixed assets in Vietnam?

According to Article 13 of Circular 45/2013/TT-BTC, enterprises can choose suitable depreciation methods for each type of fixed asset based on their ability to meet the conditions for each method. Specifically, there are 3 methods:

(1) The straight-line depreciation method is a method where depreciation is allocated evenly each year into the business production expenses of the enterprise for fixed assets participating in business activities.

Enterprises operating with high economic efficiency can apply accelerated depreciation but not more than twice the depreciation rate determined by the straight-line method to quickly renew technology.

Fixed assets participating in business activities that are eligible for accelerated depreciation include machinery, equipment; measuring and testing tools; transport equipment and means; management tools; livestock, perennial trees.

When applying accelerated depreciation, enterprises must ensure profitability. If accelerated depreciation is applied exceeding twice the prescribed rate in the timeframe for utilizing fixed assets as stated in Appendix 1 attached to Circular 45/2013/TT-BTC, the excess depreciation (more than twice) shall not be counted as reasonable expenses when calculating taxable income for the period.

(2) The declining balance depreciation method with adjustments:

The declining balance depreciation method with adjustments is applicable to enterprises in fields requiring rapid technological change and development.

Fixed assets participating in business activities eligible for this method must simultaneously meet the following conditions:

- They are new investments (not yet used);

- They include types such as machinery, equipment; measuring and testing tools.

(3) The depreciation method based on quantities or volumes of products:

Fixed assets participating in business activities eligible for this method are types of machinery, equipment that must meet the following conditions simultaneously:

- Directly related to product production;

- The total quantity, volume of products produced based on the designed capacity of the fixed asset must be determinable;

- The average monthly utilization rate during the financial year is not less than 100% of the designed capacity.

Vietnam: Can an enterprise change the depreciation method applicable to fixed assets?

According to clause 4, Article 13 of Circular 45/2013/TT-BTC, the following regulation is set:

Method for depreciation of fixed assets:

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4. The depreciation method applied to each fixed asset chosen and notified by the enterprise to the directly managing tax authority must be consistently implemented throughout the use of the fixed asset. In exceptional cases where a change in the depreciation method is needed, the enterprise must clearly explain the change in the method of using the fixed asset to bring economic benefits to the business. Each fixed asset is only allowed to change depreciation methods once during its use, and a written notice must be provided to the directly managing tax authority.

Only in special cases can a business change the depreciation method. The business must provide a clear explanation of the change in the method of using the fixed asset to prove that the change will bring economic benefits.

Note: Each fixed asset can only change the depreciation method once during its use. When changing the depreciation method for fixed assets, the business must provide written notice to the directly managing tax authority.