Vietnam: Is the director's salary of a 5-Member LLC calculated as a operating costs of the company?

Vietnam: Is the director's salary of a 5-Member LLC calculated as a operating costs of the company?

Pursuant to the provisions in Article 66 of the Law on Enterprises 2020 regarding the salary, remuneration, bonus, and other benefits of the Chairman of the Members' Council, Director, General Director, and other managers belonging to a limited liability company with two or more members as follows:

Salary, remuneration, bonus, and other benefits of the Chairman of the Members' Council, Director, General Director, and other managers

1. The company pays salary, remuneration, bonus, and other benefits for the Chairman of the Members' Council, Director, General Director, and other managers based on performance and business outcomes.

2. The salary, remuneration, bonus, and other benefits of the Chairman of the Members' Council, Director, General Director, and other managers are calculated as operating costss according to the provisions of the law on corporate income tax, other relevant laws, and must be presented as a separate item in the company's annual financial statements.

Thus, the salary of the Director of a 5-member LLC is calculated as a operating costs according to the provisions of the law on corporate income tax and other relevant laws of the company.

Shall the director's salary of a 5-Member LLC be deductable for CIT caculation?

The expenses on salaries, wages, and bonuses for employees in the following cases are not deductible when calculating corporate income tax (CIT) based on Clause 2.6 Article 6 of Circular 78/2014/TT-BTC (as amended and supplemented at Clause 2 Article 6 of Circular 119/2014/TT-BTC, Clause 1 Article 4 of Circular 96/2015/TT-BTC and Clause 2 Article 3 of Circular 25/2018/TT-BTC) as follows:

Expenses deductible and non-deductible when determining taxable income

...

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

...

2.6. Expenses for salaries, wages, and bonuses for employees in the following cases:

...

d) Salaries, wages, and bonuses for the owner of a private enterprise, the owner of a one-member limited liability company (owned by an individual); remuneration for founders, members of the Members' Council, the Board of Directors who do not directly participate in the management of production and business.

...

Based on the provision, the salary and wage expenses of the owner of a private enterprise, the owner of a one-member limited liability company (owned by an individual) are categorized as non-deductible expenses when determining taxable CIT.

Thus, the salary of the Director of a 5-member LLC can be determined as a deductible expense when calculating CIT.

Vietnam: Is the director's salary of a 5-Member LLC calculated as a operating costs of the company? (Image from the Internet)

How to determine the expenses for calculating CIT of a 5-Member LLC in Vietnam?

Pursuant to the provisions in Article 6 of Circular 78/2014/TT-BTC, the expenses for calculating taxable CIT of a 5-member LLC is determined as follows:

expenses for calculating taxable CIT is the entire amount of sales, processing fees, and service provision fees, including subsidies, surcharges, and extra fees the enterprise enjoys, regardless of whether the money has been collected or not.

- For enterprises paying value-added tax using the deduction method, the expenses does not include value-added tax.

Example 4: Enterprise A is subject to paying value-added tax using the deduction method. The value-added tax invoice includes the following indicators:

Selling price: 100,000 VND.

VAT (10%): 10,000 VND.

Payment price: 110,000 VND.

The expenses for calculating taxable income is 100,000 VND.

- For enterprises paying value-added tax using the direct method on added value, the expenses includes value-added tax.

Example 5: Enterprise B is subject to paying value-added tax using the direct method on added value. The sales invoice only records the selling price of 110,000 VND (price inclusive of value-added tax).

The expenses for calculating taxable income is 110,000 VND.

- In the case of an enterprise engaged in service business where customers pay in advance for multiple years, the expenses for calculating taxable income is allocated over the number of years prepaid or determined according to one-time payment expenses.

In case the enterprise is eligible for tax incentives, the determination of the tax amount to be exempted or reduced must be based on the total corporate income tax payable for the prepaid years divided by (:) the number of prepaid years.