Is corporate income tax calculated based on tax rate in Vietnam?

Is corporate income tax calculated based on tax rate in Vietnam?

Pursuant to Article 6 of the Law on Corporate income tax 2008, the calculation of corporate income tax is based on taxable income and tax rates.

In addition, according to the guidelines in Article 5 of Decree 218/2013/ND-CP which implements the Law on Corporate income tax 2008:

The basis for tax calculation is the taxable income in the period and the tax rate.

The tax period is implemented in accordance with the provisions of Article 5 of the Law on Corporate income tax 2008 and tax management laws.

Referring to Article 5 of the Law on Corporate income tax 2008, the tax period includes:

(1) The corporate income tax period is determined according to the calendar year or the fiscal year, except for case (2).

(2) The corporate income tax period per income-generating instance applies to foreign enterprises as prescribed at points c and d, clause 2, Article 2 of the Law on Corporate income tax 2008.

*Note: Enterprises can choose the tax period according to the calendar year or fiscal year, but must notify the tax authority before implementation.

Therefore, corporate income tax calculation will be based on tax rates.

Is corporate income tax calculated based on tax rate in Vietnam? (Image from the Internet)

How is taxable income determined as a basis for calculating corporate income tax in Vietnam?

Based on Article 7 of the Law on Corporate income tax 2008 (amended and supplemented by clause 4, Article 1 of the 2013 Amended Law on Corporate income tax) and Article 6 of Decree 218/2013/ND-CP guiding the specific method to determine taxable income as follows:

(1) Taxable income in the tax period is determined by taxable revenue minus exempted income and losses carried forward from previous years.

Taxable income in the tax period is determined as follows:

(2) Taxable revenue equals revenue minus deductible expenses from production, business activities plus other income, including income received outside of Vietnam.

Taxable revenue is determined as follows:

- Enterprises with multiple business activities should compile taxable revenue from all business activities.

- In the case of a business activity incurring a loss, it is allowed to offset the loss against taxable revenue from other profitable business activities according to the enterprise's discretion. The remaining income after offsetting applies the corporate income tax rate of the profitable business activity.

- Income from real estate transfers, investment projects transfers, rights transfers for participating in investment projects, and rights transfers for exploration, mining, and processing of minerals must be separately determined for tax declaration and payment.

- If transferring rights for participating in investment projects, investment projects transfers (except projects for exploring and mining), and real estate transfer if incurring a loss, the loss can be offset with profit from other business activities within the tax period.

- In the case of businesses undergoing dissolution procedures with fixed asset real estate sales, the income from real estate transfer (if any) can be offset with income from business production activities of the enterprise.

What is the formula for calculating the vorporate income tax payable in Vietnam?

Based on clause 1, Article 3 of Circular 78/2014/TT-BTC (amended by Article 1 of Circular 96/2015/TT-BTC), the regulation is as follows:

Method of Tax Calculation

1. The corporate income tax payable in the tax period equals taxable income minus the deduction for science and technology funds (if any), multiplied by the corporate income tax rate.

The corporate income tax payable is determined by the following formula:

Corporate Income Tax Payable = (Taxable Income - Deduction for Science & Technology Funds (if any)) x Corporate Income Tax Rate

- Vietnamese enterprises investing abroad that transfer the income portion after paying foreign corporate income tax to Vietnam in cases where the countries have signed a double taxation avoidance agreement should comply with the agreement; for countries that have not signed such an agreement, if the corporate income tax rate in the country is lower, the difference must be paid compared to the corporate income tax calculated according to the Law on Corporate income tax of Vietnam.

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The formula for calculating corporate income tax payable is:

Corporate Income Tax Payable = (Taxable Income - Deduction for Science & Technology Funds (if any)) x Corporate Income Tax Rate

Thus, the corporate income tax payable by an enterprise for the tax period is determined by taxable income multiplied by the tax rate.

If an enterprise establishes a science and technology fund, this amount will be deducted from taxable income.