Are late tax payment penalties deductible when determining taxable corporate income in Vietnam?

Are late tax payment penalties deductible when determining taxable corporate income in Vietnam?

Based on Clause 2, Article 6 of Circular 78/2014/TT-BTC, as amended by Article 4 of Circular 96/2015/TT-BTC, the provisions regarding deductible and non-deductible expenses for determining taxable corporate income are as follows:

Deductible and Non-Deductible Expenses in Determining Taxable Income

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

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2.36. Administrative violation fines, including traffic law violations, violations of business registration policies, violations of accounting and statistical policies, violations of tax laws including late tax payment penalties as stipulated in the Law on Tax Management, and other administrative violation penalties as prescribed by law.

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Thus, late tax payment penalties are not deductible when determining taxable corporate income.

Are late tax payment penalties deductible when determining taxable corporate income in Vietnam? (Image from the Internet)

What are conditions for deductible expenses for determining taxable corporate income in Vietnam?

Based on Clause 1, Article 9 of the Law on Corporate Income Tax 2008, as amended and supplemented by Clause 5, Article 1 of the Amended Law on Corporate Income Tax 2013 and Clause 3, Article 1 of Law No. 71/2014/QH13 on Amending Tax Laws 2014, the conditions for deductible expenses when determining taxable corporate income are as follows:

- Expenses must be actually incurred and related to the production and business activities of the enterprise; expenses must be for vocational education activities; expenses must be for national defense and security duties of the enterprise as prescribed by law.

- Expenses must have valid invoices and documents as prescribed by law. For invoices for goods and services purchased with a value of VND 20 million or more per instance, there must be non-cash payment documents, except in cases where non-cash payment documents are not required by law.

How to determine corporate income tax payable in Vietnam?

Based on Article 13 of Circular 78/2014/TT-BTC, the determination of corporate income tax payable is defined as follows:

- Corporate income tax payable at the province or city directly under the Central Government, where there is a dependent accounting production facility = Corporate income tax payable during the period x Cost ratio of the dependent accounting production facility / Total expenses of the enterprise.

- Where:

- Data for determining the cost ratio is based on the previous year’s corporate income tax finalization data, self-determined by the enterprise as a basis for determining the payable tax, and used for declaring and paying corporate income tax for subsequent years.

- For enterprises with dependent accounting production facilities operating in various localities, the data to determine the cost ratio of the headquarters and dependent accounting production facilities are self-determined by the enterprise, based on final tax finalization data of 2008, and this ratio is stably used from 2009 onwards.

- For newly established enterprises, enterprises with newly established or reduced dependent accounting production facilities in various localities, the enterprise must self-determine the cost ratio for the first tax period in cases of these changes. From the next tax period, the cost ratio shall be used stably following the above principle.

- Units of dependent enterprises with income outside their main business activities shall pay taxes in the province or city under the Central Government where the production and business activity arises.

Where should corporate income tax be paid in Vietnam?

Based on Article 12 of Circular 78/2014/TT-BTC, the principles for determining the location for paying corporate income tax are as follows:

- Enterprises shall pay tax at their headquarters.

- If an enterprise has a production facility (including processing and assembling facilities) that performs dependent accounting activities in a province or city under the Central Government other than where the headquarter is located, the tax shall be calculated and paid both at the place where the headquarter is located and at the place where the production facility is based.

Note: The tax liability allocation specified in this clause does not apply to enterprises with works, work items, or construction facilities that perform dependent accounting.