What are regulations on carry-forward of losses when calculating corporate income tax in Vietnam?

What are regulations on carry-forward of losses when calculating corporate income tax in Vietnam?

Based on Article 9 of Circular 78/2014/TT-BTC amended by Article 7 of Circular 96/2015/TT-BTC regarding determination and carry forward of losses as follows:

(1) A loss incurred in the tax period is the negative difference in taxable income excluding losses carried forward from previous years.

(2) Enterprises, after finalizing taxes and incurring losses, must carry forward and continuously apply said losses to the income (taxable income minus tax-exempt income) of the subsequent years. The carry-forward period is continuous and should not exceed 5 years from the year following the year the loss occurred.

Enterprises may temporarily apply losses to the income of quarters of the subsequent year after preparing quarterly provisional declarations and officially apply them in the following year when preparing annual tax finalization declarations.

- Enterprises having losses across quarters within the same fiscal year can offset the losses of earlier quarters against subsequent quarters of that fiscal year. Upon finalizing corporate income taxes, enterprises determine the total annual loss and continuously carry forward the entire loss to the taxable income of the years following the year the loss occurred as per the above regulations.

- Enterprises independently determine deductible losses from income based on the stated principles. In case of new losses during the carry-forward period, these new losses (excluding prior period losses brought forward) will be entirely and continuously carried forward for not more than 5 years from the year following the year the loss occurred.

In cases where tax authorities audit and determine different deductible losses than those independently calculated by the enterprise, the deductible losses must follow the conclusions of the auditing authority but ensure entire and continuous carry forward not exceeding 5 years from the year following the year of incurrence as per regulations.

Beyond the 5-year period from the year following the loss occurrence, if losses have not been fully applied, they cannot be carried forward to later years.

(3) Enterprises changing business forms, merging, consolidating, splitting, or dissolving, must finalize taxes with the tax authority up to the date of receiving decisions from competent authorities regarding the business transformation, merger, consolidation, split, dissolution, or bankruptcy (except for cases exempted from tax finalization as per regulations). Losses incurred before transformation, merger, or consolidation must be tracked year by year and offset against the income of the same year of the new enterprise post-transformation, merger, or consolidation, or continue to be carried forward to subsequent years to ensure the principle of continuous carry forward not exceeding 5 years from the year following the year the loss occurred.

Losses incurred before a split or division into other enterprises and still within the carry-forward period will be allocated to post-split/division enterprises according to the divided or split equity capital ratio.

What are regulations on carry-forward of losses when calculating corporate income tax in Vietnam? (Image from the Internet)

Which entities are corporate income taxpayers in Vietnam?

Based on Article 2 of Circular 78/2014/TT-BTC regarding subjects liable for corporate income tax as follows:

Taxpayers

1. Corporate income taxpayers are organizations involved in production and business activities of goods and services with taxable income (hereinafter referred to as enterprises), including:

a) Enterprises established and operating under the regulations of the Law on Enterprises, Law on Investment, Law on Credit Institutions, Law on Insurance Business, Law on Securities, Law on Petroleum, Law on Commerce, and other legal documents in forms such as: Joint Stock Companies; Limited Liability Companies; Partnerships; Private Enterprises; Law Offices, Private Notary Offices; Parties in Business Cooperation Contracts; Parties in Product Sharing Contracts; Petroleum Joint Ventures, Joint Operating Companies.

b) Public and private non-business units engaged in production and business activities with taxable income in all sectors.

c) Organizations established and operating under the Law on Cooperatives.

d) Enterprises established under foreign laws (hereinafter referred to as foreign enterprises) with a permanent establishment in Vietnam.

A permanent establishment of a foreign enterprise is a production or business facility through which the foreign enterprise carries out part or all of its production or business activities in Vietnam, including:

- Branches, offices, factories, workshops, means of transportation, mines, oil or gas wells, or other natural resource exploitation sites in Vietnam;

- Construction sites, construction, installation, or assembly facilities;

- Service facilities, including consulting services through employees or other organizations and individuals;

- Agents for foreign businesses;

- Representatives in Vietnam who are authorized to sign contracts on behalf of a foreign enterprise or do not have authorization but regularly deliver goods or provide services in Vietnam.

In case Double Taxation Agreements signed by the Socialist Republic of Vietnam stipulate otherwise regarding permanent establishment, the provisions of that Agreement shall apply.

e) Other organizations not mentioned in points a, b, c, and d of this Clause with activities in the production and business of goods or services with taxable income.

2. Foreign organizations producing or doing business in Vietnam not following the Law on Investment, Law on Enterprises, or with income sourced from Vietnam must pay corporate income tax according to separate guidelines issued by the Ministry of Finance. These organizations, if engaging in capital transfer activities, are subject to corporate income tax following guidelines in Article 14, Chapter IV of this Circular.

Thus, subjects liable for corporate income tax include organizations involved in the production and business of goods and services generating taxable income and foreign organizations producing or doing business in Vietnam not per the Law on Investment, Law on Enterprises, or generating income in Vietnam and are taxed under the guidance of the Ministry of Finance.

Where to submit corporate income tax in Vietnam?

According to Clause 1 Article 56 of the Law on Tax Administration 2019, enterprises submit corporate income tax to the state budget at the following locales:

- At the State Treasury.

- At the tax administration agency where tax dossiers are filed.

- Through organizations authorized by the tax administration to collect taxes.

- Through commercial banks, other credit institutions, and service organizations as per legal provisions.

As stipulated in Article 12 of Decree 218/2013/ND-CP, the location for corporate income tax payment is defined as follows:

- Enterprises pay tax at the locality where their head office is located. If an enterprise has a dependent production facility in a province or centrally-run city other than where the head office is located, tax is calculated and paid at both the head office and the location of the dependent production facility.

The corporate income tax payable in the province, city where a dependent production facility is registered is determined by the corporate income tax owed in the period multiplied by (x) the ratio of costs generated at the dependent facility to the total costs of the enterprise.

This applied payment is not for construction projects, construction categories, or dependent construction establishments.

The decentralization, management, and utilization of revenue from corporate income tax follow the provisions of the Law on State Budget 2015.

- Dependent units of enterprises accounting for the entire industry with income other than main business activities pay tax in the province, centrally-run city where such business activity takes place.