What are the deductible expenses when determining income subject to CIT in Vietnam?

What are the deductible expenses when determining income subject to CIT in Vietnam?

According to Clause 1, Article 9 of Decree 218/2013/ND-CP supplemented by Clause 5, Article 1 of Decree 12/2015/ND-CP, the deductible expenses when determining taxable income include:

- Actual expenditures on the enterprise’s operation, including the following expenditures:

+ Expenditures on provision of defense and security education, training, operation of the militia, and performance of other defense and security tasks as prescribed by law; expenditures on support for operation of Communist Party organizations and intramural socio-political organizations of enterprises;

+ Expenditures on provision of vocational education and vocational training for employees as prescribed by law;

+ Actual expenditures on prevention and control of HIV/AIDS at work of enterprises, including: expenditure on provision of training for enterprise’s employees in charge of HIV/AIDS prevention and control, expenditure on propagation on HIV/AIDS prevention and control among enterprises’ employees, cost of consultancy, diagnosis, and HIV testing, expenditures on support for HIV sufferers being enterprises’ employees

- Expenditures with adequate invoices and documents as prescribed by law;

For the cases: Purchase of goods which are agricultural, forestry and aqua products directly caught and sold out; buying handmade products made ​​of jute, sedge, bamboo, rattan, straw, coconut shell, internal coconut shell or materials used from agricultural products of handicraft producers directly selling, buying soil, rocks, sand, and gravel of family households and individuals exploiting by themselves directly selling, buying scrap from collectors, buying furniture and property from family households and individuals directly selling and the purchase services of family households and individuals without business must have voucher paid to the seller and list of purchase of goods or services which the enterprises’ legal representatives or authorized persons signs and assume the responsibility.

- For individual invoice of purchase of goods and services with value from twenty million dong or more, there must be voucher of non-cash payment, except for enterprises’ expenditures for implementing the duties of national defense and security, activities of HIV/AIDS prevention at workplace, support of activities of Party or social political organizations in enterprises specified at Point a, Clause 1, Article 9 of Decree 218/2013/ND-CP; for the purchase of goods and services made with the List specified at Point b, Clause 1, Article 9 of Decree 218/2013/ND-CP;

What are the deductible expenses when determining income subject to CIT in Vietnam? (Image from the Internet)

What are the non-deductible expenses when determining income subject to CIT in Vietnam?

According to Clause 2, Article 9 of Decree 218/2013/ND-CP amended by Clause 5, Article 1 of Decree 91/2014/ND-CP and Clause 6, Article 1, Clause 3, Article 6 of Decree 12/2015/ND-CP; Article 2 of Decree 146/2017/ND-CP, non-deductible expenses when determining taxable income are performed under Clause 2, Article 9 of Corporate Income Tax Law 2008 and Clause 5, Article 1 of the Law on Amendment to Corporate Income Tax Law 2013. A number of cases where expenditures are not deducted are specified as follows:

- The expenditures not satisfying the conditions specified in Clause 1, Article 9 of Decree 218/2013/ND-CP, except for the value of damage due to natural disaster, epidemics, fire and other unforeseen circumstances are not compensated;

The value of losses due to natural disasters, epidemics, fires and other unforeseen circumstances without compensation is determined by the total loss value minus (-) the value the insurers or other individuals and organizations must compensate as prescribed by law;

- The excess cost of business management allocated by the foreign enterprises to the permanent establishment in Vietnam is calculated by the following formula:

- The expenditure exceeds as prescribed by law on provision appropriation;

- The depreciation of fixed assets that does not comply with regulations of the Ministry of Finance, including: depreciation for cars with fewer than 9 seats (except for cars used for passenger transport, tourism, or hotel operation; cars used for display and test drive by car dealers) in proportion to the portion of cost in excess of 1.6 billion dong per car; depreciation of civil aircraft or yachts not used for transport of passengers or goods, tourism, or hotel operation.

- The accruals on expenses inconsistently with regulations of law;

The accruals included in the expenses deducted are: accruals of periodic overhaul of fixed assets, of operations with revenue accounted but the obligations must be performed under contract including asset leasing prepaid for many years but the lessor has accounted the whole into the revenue of money collecting year and other accruals as prescribed by the Ministry of Finance;

- Payments of interest from loans corresponding to the missing charter capital, under the capital contribution schedule stated in the enterprise’s charter capital; interest from loan has been recoded into the value of assets; interest from loans to implement contracts for exploration and extraction of oil and gas;

- Expenditure for advertising, marketing, promotion, brokerage commission (excluding insurance commission as prescribed by law on insurance business, commission for sales agent at right price, commission paid to the distributor of multi-level marketing enterprises); expenditures for reception, meeting, conference; expenditures for support of costs directly related to the business and production activities exceeding 15% total expenditure deducted.

The total expenditure deducted excluding the expenditures specified above; for commercial operation excluding

Expenditures subject to expense control at this Point include donation or offer to customers;

- The expenses permitted for recovery exceed the rate specified in oil and gas contract approved. Where the oil and gas contract does not provide for expense recovery rate, the expense exceeding more than 35% shall not be included in the expenses deducted. The expenses not included in the recovered expenses include:

+ The expenditures specified in Clause 2, Article 9 of the Law on corporate income tax and Point 2, Clause 5, Article 1 of the Law amending and supplementing a number of articles of the Law on corporate income tax;

+ Costs incurred prior to the effect of the oil and gas contract, unless otherwise agreed in oil and gas contract or by decision of the Prime Minister;

+ Other types of petroleum commissions and expenditure are not included in the recovery expenses under contract;

+ Interest expenses for the investment in search, exploration, development of mire and oil and gas extraction;

+ Fines and compensation for damage;

- The input value added tax deducted and the input value added tax of value of car with 9 seats or less exceeding 1.6 billion dong shall not be deducted . The corporate income tax and taxes, fees, charges and other revenues are not included in the expenses as prescribed by the Ministry of Finance;

- The expenditures not corresponding to the taxable income, except for some special cases under the guidance of the Ministry of Finance;

l) Foreign exchange differences from revaluation of monetary items with foreign currency origin at the end of tax period, except for the foreign exchange differences from revaluation of debts payable with with foreign currency origin at the end of tax period and the foreign exchange differences during the basic construction investment to form the fixed assets of enterprises newly established but theses assets have not been put into business and production shall comply with guidance of the Ministry of Finance;

For debts receivables, loan with foreign currency generated in the period, the foreign exchange difference included in the expenses deducted is the difference between the exchange rate at the time of debt recovery or loan recovery with the exchange rate at the time of recording the debts receivable or initial loan;

- Salaries and wages of private business owners , owners of one-member limited liability companies ( owned by an individual ) , remuneration paid to a founding member of enterprise but these are not directly involved in administration of production and business; salaries , wages and other expenses accounted to be paid to workers but in fact not paid or without invoice or voucher as prescribed by law; expenditures for bonuses or buying life insurance for employees without specified eligibility for enjoyment in one of the following documents: labor contract, collective labor agreement; financial Regulation of Company , Corporation or Group; reward Regulation specified by Chairman of the Board, General Director and Director based on the financial regulations of Company or Corporation; expenditures for salaries, wages and allowances payable to employees but the expired time limit for submission of documents for annual tax settlement actually not paid yet unless enterprises have appropriate provision fund to supplement the salary fund of the subsequent year to ensure the payment of salary is not interrupted or used for other purposes. The annual rate of provision is decided by enterprises but not exceeding 17% of salary fund implemented (as the total salary actually paid of that settlement year to the time limit for submission of settlement document as prescribed, excluding the amount of appropriation of salary provision fund of previous year spent in the tax settlement year). Where in previous year, the enterprises have appropriated their salary provision fund but after 06 months, from the end day of financial year, the enterprises have not used or have used up their salary provision fund, the enterprises must record the reduction of costs of the following year;

- Grants, except for grants for education, health care, scientific research, disaster recovery, building of unity houses, gratitude houses and houses for the poor, the subjects enjoyed preferential treatment policy as prescribed by law, the grants under the State program for localities in areas having extremely difficiculty socio-economic conditions;

Organizations receiving the grants for scientific research specified at Point n, Clause 2, Article 9 of Decree 218/2013/ND-CP is technological and scientific organizations established and operating under the Science and Technology Law 2013 performing their scientific and technological duties as prescribed by law on science and technology;

- Expenditures in excess of 01 million VND / month / person for: Deduction for voluntary pension fund, purchase of voluntary pension insurance, life insurance for employees; the excess of rate specified by law on social insurance or the health insurance appropriated for funds of social security (social insurance, compulsory supplementary pension insurance), medical insurance fund and unemployment insurance fund for employees);

Expenditures appropriated for the voluntary pension fund, social security fund, purchase of voluntary pension insurance, life insurance for employees are included in the expenses deducted in addition to failure to exceed the rate specified in this Clause, the conditions for enjoyment and rate of enjoyment in one of the following documents: labor contract, collective labor agreement; financial Regulation of company, corporation or group; reward Regulation specified by Chairman of the Board, General Director and Director based on the financial regulations of Company or Corporation

- Expenditures of business activities: banking, insurance, lottery, secutiries, and stock and some specific business activities as prescribed by the Ministry of Finance;

- Cash for late payment of tax under the provisions of the Tax Management Law 2019;

- Expenditures directly related to the issue of stock (except for stocks classified as liabilities payable) and dividend of stocks (except for dividend of stock classified as liabilities payable), trading of fund stocks and other expenditures directly related to the increase or reduction of equity of enterprise;

What are the sources of taxable income for corporate income tax?

Under Article 3 of the Corporate Income Tax Law 2008 amended by Clause 1, Article 1 of the Law on Amendments to Tax Laws 2014, taxable incomes include income from goods and service production and business activities and other incomes.

Other incomes include:

+ income from transfer of capital, transfer of the right to capital contribution;

+ income from real estate transfer, transfer of construction projects, transfer of the right to participate in construction projects, transfer of the right to mineral exploration, mineral extraction, and mineral processing;

+ income from the right to enjoyment of property, right to ownership of property, including income from intellectual property rights defined by law;

+income from transfer, lease, liquidation of assets, including valuable papers;

+ income from deposit interest, loan interest, sale of foreign exchange;

+ collection of debts that were cancelled; receipts from debts without creditors;

+ incomes from business operation in previous years that were committed, and other incomes.

With regard to Vietnamese companies making investments in the countries with which Vietnam have Double Taxation Agreement and transfer incomes exclusive of corporate income tax paid overseas to Vietnam, regulations of such Double Taxation Agreements shall apply.

If investments are made in countries with which Vietnam has not had Double Taxation Agreements, and if corporate income tax incurred in such countries is lower than that imposed by the Law on Corporate income tax of Vietnam, the tax difference shall be paid.