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

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, as 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 income subject to CIT are governed by Clause 2, Article 9 of the Corporate Income Tax Law 2008 and Clause 5, Article 1 of the Law on Amending Corporate Income Tax Law 2013. Non-deductible expenses include:

- Expenses that do not meet the conditions stipulated in Clause 1, Article 9 of Decree 218/2013/ND-CP, except for the value loss due to natural disasters, epidemics, fires, and other force majeure events not compensated.

The uninsured value loss due to natural disasters, epidemics, fires, and other force majeure events is determined by the total value loss minus (-) the compensation provided by the insurer or other organizations/individuals as stipulated by law;

- Business management expenses allocated by foreign enterprises to their permanent establishments in Vietnam exceeding the amount calculated by the following formula:

- Expenses exceeding the provisions of the law on setting up reserves;

- Depreciation of fixed assets not conforming to the Ministry of Finance's regulations, including: Depreciation of passenger cars with up to 9 seats (except: cars used for passenger transportation business, travel businesses, hotels; cars used as models and for test driving in automobile businesses) corresponding to the excess of the initial cost over VND 1.6 billion/car; depreciation of civilian airplanes, yachts not used for business of transporting goods/passengers, travel business, and hotels.

- Provisions made in advance into expenses that do not comply with legal provisions.

Provisions made in advance into deductible expenses include: Provisions for major fixed asset repairs on a periodic basis, provisions for activities that have recognized revenue but still need to fulfill obligations under the contracts, including advance payments for asset leasing for multiple years where the lessor recognizes the entire revenue of the year when the payment was made, other provisions as stipulated by the Ministry of Finance;

- Interest expenses corresponding to the portion of the charter capital still to be contributed, according to the capital contribution schedule stated in the enterprise's charter; interest expenses during the investment phase included in the investment value; interest expenses for implementing contracts for oil and gas exploration and extraction.

If the enterprise has fully contributed the charter capital, during the business operations, interest expenses for investing in other enterprises are deductible when determining income subject to CIT.

- Excessive recoverable costs exceeding the statutory rate stated in the approved oil and gas contract; if the oil and gas contract does not stipulate the cost recovery rate, costs exceeding 35% are not deductible; non-recoverable costs include:

+ Expenses stipulated in Clause 2, Article 9 of Corporate Income Tax Law 2008 and Point 2, Clause 5, Article 1 of Law on Amending Corporate Income Tax Law 2013;

+ Costs incurred before the oil and gas contract takes effect unless agreed upon in the contract or decided by the Prime Minister;

+ Various types of oil and gas royalties and expenses not included in the cost recovery according to the contract;

+ Interest expenses for investments in oil and gas exploration, development, and extraction;

+ Fines, compensation payments;

- Deductible input VAT, input VAT for the portion of the value of passenger cars with up to 9 seats exceeding VND 1.6 billion, corporate income tax, and other taxes, fees, charges not included in expenses as per the Ministry of Finance's regulations;

- Expenses not matching taxable revenue except for certain specific cases guided by the Ministry of Finance;

- Exchange rate differences due to the reevaluation of monetary items in foreign currencies at the end of the tax period, except for exchange rate differences from the reevaluation of foreign currency-denominated liabilities at the end of the tax period, exchange rate differences arising during the capital construction investment process for forming fixed assets of newly established enterprises whose fixed assets have not yet been put into production or business operations as guided by the Ministry of Finance.

For accounts receivable or loans denominated in foreign currencies arising during the period, the exchange rate differences included in deductible expenses are the differences between the exchange rate at the time of debt recovery or loan repayment and the initial recognition exchange rate for accounts receivable or loans;

- Salaries, wages of the private enterprise owner; the owner of a single-member limited liability company (owned by an individual), compensation for founding members of the enterprise who do not directly participate in operating the production and business activities; salaries, wages, and other accounting expenses to pay for employees but are not actually paid or do not have invoices, vouchers as stipulated by law; bonus payments, life insurance purchase for employees not specifically documented in one of the following types of documents: labor contracts; collective labor agreements; financial regulations of the Company, Corporation, Group; bonus regulations established by the Chairman of the Board of Directors, General Director, Director in accordance with the company's financial regulations.

Salary, wage, and allowance payments must be made to employees, but if not paid by the deadline for the annual tax finalization file submission, except for cases where the enterprise has set up a wage provision to supplement the wage fund for the following year to ensure uninterrupted payments and has not used it for other purposes.

Annual provision rates are decided by the enterprise but not exceeding 17% of the used wage fund (the total actual wages paid within the tax finalization year until the final submission deadline, excluding the provision of previous years used in the final tax year).

If the enterprise has set up a wage provision in the previous year but has not used or fully used it within 6 months from the end of the fiscal year, the unused provision must be recorded as a cost reduction for the following year;

- Sponsorship expenses except for those for education, health, scientific research, disaster relief, solidarity houses, loving homes, housing for the poor, policy beneficiaries as stipulated by law, and sponsorship under State programs for localities in socio-economically disadvantaged areas.

Organizations receiving sponsorship for scientific research as stipulated here are scientific and technological organizations established and operating according to the Law on Science and Technology performing scientific and technological tasks according to the regulations on science and technology.

- Expenses exceeding VND 3 million per month per person for contributions to voluntary pension funds, purchasing voluntary retirement insurance, life insurance for employees; exceeding statutory limits on social insurance and healthcare insurance contributions to social welfare funds (mandatory supplementary social insurance, additional retirement insurance, health insurance, and unemployment insurance for employees);

Expenses for contributions to voluntary pension funds, social welfare funds, voluntary retirement insurance, life insurance for employees can be deducted apart from not exceeding the limit specified in this clause if the conditions and benefits are detailed in one of the following types of documents: labor contracts; collective labor agreements; financial regulations of the Company, Corporation, Group; bonus regulations outlined by the Board of Directors, General Director, Director in compliance with the company's financial regulations;

- Expenses of business activities: Banking, insurance, lottery, securities, and other business activities with special characteristics prescribed by the Ministry of Finance;

- Late tax payment charges as stipulated in the Tax Administration Law 2019;

- Expenses directly related to the issuance of shares (except debt instruments) and dividends of shares (except dividends of debt instruments), treasury shares trading and other expenses directly related to increasing or decreasing the enterprise's equity.

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

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, except for non-deductible expenses when determining income subject to CIT, enterprises can deduct all expenses if they meet the following conditions:

- Actual expenses incurred related to the company's business activities, including:

+ Expenses for performing national defense and security duties, training, activities of the militia and self-defense forces, and serving other national defense and security tasks as prescribed by law; expenses to support the activities of party organizations, political-social organizations within the enterprise;

+ Expenses for vocational education and training for employees as prescribed by law;

+ Actual expenses for HIV/AIDS prevention in the workplace, including: Training costs for HIV/AIDS prevention personnel, communication activities for HIV/AIDS prevention within the enterprise, cost of consulting, testing for HIV, and support costs for HIV-positive employees.

- Expenses have sufficient invoices and documents as prescribed by law.

For cases of purchasing goods being agricultural, forest, and aquatic products from direct producers; buying handmade products made from jute, rush, bamboo, leaves, rattan, straw, coconut shell, or other agricultural by-products directly from non-commercial craftsmen; purchasing land, stone, sand, gravel from families and individuals who directly mined and sold them; buying scrap from collectors, purchasing used items, assets, or services from non-commercial families and individuals, and services from non-commercial households, they must have payment documents and a List of Purchased Goods and Services signed and certified by the legal representative or authorized person of the business.

- For invoices for purchasing goods or services valued at twenty million VND or more per time, non-cash payment documents are required, except for expenses of the enterprise for tasks such as: national defense and security duties, HIV/AIDS prevention at the workplace, supporting party organizations, political-social organizations within the enterprise; purchasing goods and services that are listed as specified in Point b, Clause 1, Article 9 of Decree 218/2013/ND-CP.

Which entities are required to pay CIT in Vietnam?

According to Clause 1, Article 2 of the Corporate Income Tax Law 2008, entities required to pay corporate income tax are organizations engaged in production and business of goods and services with taxable income as stipulated by the Corporate Income Tax Law 2008, including:

- Enterprises established under Vietnamese law;

- Enterprises established under foreign law with permanent establishments or without permanent establishments in Vietnam;

- Organizations established under the Cooperative Law 2023;

- Public service units established according to Vietnamese law;

- Other organizations engaged in production and business activities with income.