Are incomes earned from internal transactions of a cooperative exempt from corporate income tax in Vietnam?

Are incomes earned from internal transactions of a cooperative exempt from corporate income tax in Vietnam?

The policy on taxes, fees, and charges for cooperatives is stipulated in Clause 3, Article 22 of the Law on Cooperative 2023 as follows:

Tax, Fee, and Charge Policy

1. Cooperative groups, cooperatives, and cooperative alliances are entitled to the highest tax preferences, fee, and charge incentives in the same field, industry, occupation, and locality in accordance with the laws on taxes, fees, and charges.

2. No registration fee is collected for cooperative groups, and no fee is charged for publishing registration content on the electronic information system of the business registration authority.

3. Exemption and reduction of corporate income tax according to the provisions of the Law on Corporate Income Tax for:

a) Income from internal transactions of cooperatives, cooperative alliances;

b) Income of cooperative groups, cooperatives, cooperative alliances when participating in linking with other individuals, organizations to form value chains, industry clusters, associated with green economy, circular economy, knowledge economy for sustainable development goals;

c) Other cases as prescribed by the Law on Corporate Income Tax.

...

Hence, income from internal transactions of cooperatives is one of the incomes exempt from corporate income tax.

Are incomes earned from internal transactions of a cooperative exempt from corporate income tax in Vietnam? (Image from the Internet)

What are internal transactions of a cooperative in Vietnam?

According to Clause 1, Article 4 of the Law on Cooperative 2023, the provisions are as follows:

Terminology Interpretation

In this Law, the terms below are understood as follows:

1. Internal transactions are the provision of products, services, including job-creating services and internal lending activities of the cooperative, cooperative alliances to the official members according to a written agreement.

2. External transactions are the transactions of the cooperative, cooperative alliance that are not internal transactions.

3. Cooperative registration certificate is a paper or electronic document recording information on the registration of cooperatives, cooperative alliances issued by the business registration authority to cooperatives, cooperative alliances.

4. Cooperative group registration certificate is a paper or electronic document recording information on the registration of cooperative groups issued by the business registration authority.

5. Labor contribution is when a member directly participates in management, labor according to the agreement in the cooperative group, cooperative, cooperative alliance.

6. Capital contribution is when a member contributes assets to form charter capital when establishing a cooperative, cooperative alliance or to supplement the charter capital of an established cooperative, cooperative alliance, or to create common assets of the cooperative group members.

Thus, internal transactions are the provision of products, services including job-creating services and internal lending activities of the cooperative, cooperative alliance to the official members according to a written agreement.

How to determine the income from internal transactions of a cooperative in Vietnam?

Based on Article 20 of Decree 113/2024/ND-CP stipulating internal transactions of cooperatives as follows:

Internal Transactions and Income from Internal Transactions of Cooperatives, Cooperative Alliances

1. Internal transactions of cooperatives, cooperative alliances include activities:

a) The cooperative, cooperative alliance organizes production or procures external products, input materials to supply to official members for production according to the general orientation of the cooperative, cooperative alliance, or to meet the living needs of official members;

b) The cooperative, cooperative alliance directly provides or hires another party to provide services to support production activities of official members according to the orientation of the cooperative, cooperative alliance, or to serve the living needs of official members;

c) The cooperative, cooperative alliance provides storage, classification, cleaning, preservation, packaging, preliminary processing, processing, and consumption services for products produced by official members;

d) The cooperative, cooperative alliance acts as a sponsor for official members with suppliers of products and input services, procurement to consume the products produced by official members through promoting contracts between official members and suppliers, procurement entities. The cooperative, cooperative alliance is paid by official members, suppliers, procurement entities for its sponsorship services;

đ) The cooperative, cooperative alliance organizes internal lending activities to support production, business, and living costs of official members.

2. Income from internal transaction activities of cooperatives, cooperative alliances is the revenue of internal transaction activities minus (-) the directly related costs of those internal transaction activities.

Thus, according to the above provisions, income from internal transactions of cooperatives is determined as follows:

Income from internal transaction activities of cooperatives is the revenue from internal transaction activities minus (-) the directly related costs of those internal transaction activities.

Accordingly, we have: