What employees’ welfare expenses are deductible when calculating CIT in Vietnam?

What employees’ welfare expenses are deductible when calculating CIT in Vietnam?

According to Point 2.31, Clause 2, Article 6 of Circular 78/2014/TT-BTC amended by Article 4 of Circular 96/2015/TT-BTC and Clause 4, Article 3 of Circular 25/2018/TT-BTC regulating employees’ welfare expenses deductible when calculating corporate income tax (CIT) are as follows:

- Expenses for funerals and weddings of the employee and their family.

- Expenses for vacations and support for medical treatment.

- Expenses for additional educational support at training institutions.

- Expenses supporting families of employees affected by natural disasters, war, accidents, or illness.

- Rewards for employees' children with excellent academic performance.

- Support for employee travel expenses during holidays and Tet.

- Accident insurance, health insurance, other voluntary insurance for employees (excluding expenses for purchasing life insurance for employees, and voluntary retirement insurance as guided in Point 2.11, Article 6 of Circular 78/2014/TT-BTC) and other welfare-related expenses.

Note: The total amount of welfare expenses mentioned above must not exceed one month's average actual salary implemented in the tax year of the enterprise.

What employees’ welfare expenses are deductible when calculating CIT in Vietnam? (Image from the Internet)

Are VAT deductions applicable to employees’ welfare expenses in Vietnam?

Pursuant to Official Dispatch 4005/TCT-CS of 2015 by the General Department of Taxation guiding VAT deduction declarations for direct employees’ welfare expenses with the following contents:

According to the regulation in Clause 1, Article 6 of Circular 78/2014/TT-BTC amended by Article 4 of Circular 96/2015/TT-BTC regulating deductible and non-deductible expenses when determining taxable income as follows:

Deductible and non-deductible expenses when determining taxable income

1. Except for the non-deductible expenses stated in Clause 2 of this Article, enterprises are allowed to deduct all expenses if they meet the following conditions:

a) The expense actually incurred is related to the business and production activities of the enterprise.

b) The expense has valid invoices and documents as prescribed by law.

c) If the expense involves purchasing goods or services with an invoice value from 20 million VND or more (including VAT), non-cash payment documentation is required.

Non-cash payment documentation shall follow the regulations of legal documents on VAT.

...

According to Point 2.31, Clause 2, Article 6 of Circular 78/2014/TT-BTC as amended by Article 4 of Circular 96/2015/TT-BTC and Clause 4, Article 3 of Circular 25/2018/TT-BTC it is regulated as follows:

Deductible and non-deductible expenses when determining taxable income

...

2.31. Expenses not corresponding to taxable revenue, except for the following expenses:

...

“Employee-related welfare expenses include: funerals and weddings of the employee and their family; vacations, support for medical treatment; additional educational support at training institutions; support for families of employees affected by natural disasters, war, accidents, illness; rewards for employees' children with excellent academic performance; support for employee travel expenses during holidays and Tet and other welfare-related expenses. The total mentioned welfare expenses must not exceed one month's average actual salary implemented in the tax year of the enterprise”;

...

According to Clause 1, Article 14 of Circular 219/2013/TT-BTC regulating the principles of input VAT deduction:

Principles of input VAT deduction

1. Input VAT for goods and services used for production and business of VAT-liable goods and services shall be fully deducted, including input VAT on VAT-liable goods damaged without compensation.

...

Thus, based on the above legal basis and guidance in Official Dispatch 4005/TCT-CS, enterprises may deduct VAT for welfare expenses corresponding to the amount calculated into deductible expenses when determining taxable income if they meet the conditions for deduction as prescribed.

Vietnam: How is the payable CIT determined?

According to Article 13 of Circular 78/2014/TT-BTC regulations on determining the payable CIT are as follows:

- Corporate income tax payable in provinces, centrally-run cities where dependent accounting production establishments are located = Corporate income tax due in the period x Cost ratio of the dependent accounting establishment / total cost of the enterprise.

- Where:

- The data used to determine the cost ratio is based on the enterprise's tax settlement data of the previous year to the tax calculation year as self-determined by the enterprise as a basis for determining the tax payment and is used for declaring and paying corporate income tax for subsequent years.

- For enterprises with dependent accounting production establishments in various localities, the data to determine the cost ratio of the headquarters and dependent accounting establishments shall be self-determined by the enterprise based on the corporate income tax settlement data of 2008, and this ratio shall be consistently applied from 2009 onwards.

- For newly established enterprises, enterprises operating with additional establishment or narrowing of dependent accounting production establishments in various localities, the enterprise must self-determine the cost ratio for the first tax period in the event of such changes. From the subsequent tax period onwards, the cost ratio is consistently applied according to the above principle.

- Dependent accounting units of entire sector accounting enterprises with income outside the main business activities shall pay tax in the provinces, centrally-run cities where such production and business activities arise.