When determining income subject to CIT in Vietnam, what are the cases in which the depreciation of fixed assets will not be deductible?

When determining income subject to CIT in Vietnam, what are the cases in which the depreciation of fixed assets will not be deductible?

According to the provisions in point 2.2, paragraph 2, Article 6 of Circular 78/2014/TT-BTC amended by Article 4 of Circular 96/2015/TT-BTC, supplemented by paragraph 1 Article 3 of Circular 25/2018/TT-BTC, depreciation of fixed assets in the following cases will not be deductible when determining income subject to CIT:

- Depreciation of fixed assets that are not used for business operations.

Exceptions are fixed assets serving employees at the enterprise, such as breakrooms, canteens, changing rooms, restrooms, medical rooms or stations, training facilities, libraries, kindergartens, sports areas, and eligible fixed assets installed in the aforementioned facilities; clean water reservoirs, garages, employee transportation buses, worker housing; costs of constructing physical infrastructure, costs of purchasing machinery, equipment that are fixed assets used for vocational education activities are included for depreciation in deductible expenses when determining taxable income.

- Depreciation on fixed assets without documentation proving enterprise ownership (except for fixed assets leased for finance).

- Depreciation on fixed assets not managed, tracked, or recorded in the enterprise's accounting books according to current asset management and accounting policies.

- Depreciation exceeding the current regulations of the Ministry of Finance on management, use, and depreciation of fixed assets.

Enterprises should notify the direct tax authority about the chosen method of fixed asset depreciation before conducting depreciation (e.g., notifying the choice of straight-line depreciation method...).

Annually, enterprises depreciate fixed assets according to current regulations of the Ministry of Finance on management, use, and depreciation of fixed assets, including cases of accelerated depreciation (if conditions are met).

Enterprises with high economic efficiency are allowed accelerated depreciation but not exceeding twice the standard depreciation rate determined by the straight-line method to quickly modernize technology for certain fixed assets under current Ministry of Finance regulations on management, use, and depreciation of fixed assets. When applying accelerated depreciation, the enterprise must ensure profitability.

For contributed fixed assets, transferred fixed assets when splitting, merging, consolidating, converting business forms with revaluation, the receiving enterprise calculates depreciation on the revaluated original cost into deductible expenses.

For other assets that do not qualify as fixed assets with a contribution or transfer in cases of split, merge, consolidation, business form conversion with revaluation, the receiving enterprise includes the cost or apportions it into deductible expenses based on the revaluation.

For self-made fixed assets, the original cost of fixed assets depreciated for inclusion into deductible expenses is the total production cost forming those assets.

For assets like tools, instruments, and reusable packaging that do not qualify as fixed assets under regulations, the purchase cost of these assets is apportioned into business production operating expenses over the term but not exceeding 3 years.

- Depreciation for fully depreciation-fixed assets.

- Some specific cases are determined as follows:

+ Not included in deductible expenses when determining taxable income: Depreciation corresponding to the original cost exceeding 1.6 billion VND/vehicle for passenger cars with 9 seats or less (excluding: passenger cars for transportation business, tourism, hotels; cars used for sample and test driving for car business); depreciation for fixed assets being civilian aircraft, yachts not used for business transportation of goods, passengers, tourism, hotels.

Passenger cars with 9 seats or less specializing in passenger transportation business, tourism, and hotels are cars registered in the enterprise's name in the Business Registration Certificate or Business Registration Certificate that has registered one of the following sectors: passenger transport, tourism, hotel business and licensed according to the regulations of legal documents on transportation business, passenger transport, tourism, hotels.

Civilian aircraft and yachts not used for goods, passenger transport, or tourism purposes are civilian aircraft, yachts of enterprises registered and depreciated for fixed assets but in the Business Registration Certificate or Business Registration Certificate, the enterprise has not registered goods transportation, passenger transportation, tourism, hotel business sectors.

If enterprises transfer or liquidate passenger cars with 9 seats or less, the remaining value is determined by the original purchase cost of fixed assets minus the accumulated depreciation of fixed assets according to current asset management and depreciation policies up to the transfer, liquidation time.

Example 8: Enterprise A purchased a car with less than 9 seats at an original cost of 6 billion VND, the company depreciated for 1 year then liquidated it. Depreciation according to current asset management and depreciation policies is 1 billion VND (the depreciation period is 6 years according to fixed asset depreciation regulations). The tax policy depreciation included in deductible expenses is 1.6 billion VND/6 years = 267 million VND. Enterprise A liquidates and sells the car for 5 billion VND.

Income from car liquidation: 5 billion VND - (6 billion VND - 1 billion VND) = 0 VND

- Depreciation on buildings on land used for both business production and other purposes is not included in deductible expenses for the portion of the building's value corresponding to the area not used for business production.

If an enterprise has buildings on land such as office headquarters, factories, stores serving business production activities, the enterprise is allowed depreciation into deductible expenses when determining taxable income according to the appropriate depreciation rate and useful life of fixed assets as stipulated by current Ministry of Finance regulations if the following conditions are met:

++ Possesses a Land Use Rights Certificate in the name of the enterprise (in case of privately-owned land) or has a land lease, loan contract between the enterprise and the land-owning entity or individual with the enterprise representative held accountable for the contract's accuracy before the law (in case of leased or borrowed land).

++ Invoices for construction work payment, along with the construction contract, contract liquidation, and work value settlement with the enterprise's name, address, and tax code.

++ Managed, tracked, and accounted buildings on land as per current fixed asset management regulations.

+ If an enterprise-owned fixed asset used for business production that needs to be temporarily paused due to seasonal production under 9 months; temporarily paused for repairs, relocation, maintenance, under 12 months, then continues serving business production, the enterprise is allowed depreciation and the depreciation cost during the pause period is included in deductible expenses when determining taxable income.

The enterprise must preserve and provide full documentation and reasons for temporarily pausing the fixed assets upon tax authority requests.

+ Long-term land use rights are not depreciated or apportioned into deductible expenses when determining taxable income; Time-limited land use rights, if validated with full invoices, documents, and compliant legal procedures, involved in business activities, are gradually apportioned into deductible expenses according to the allowed land use term in the Land Use Rights Certificate (including temporary cessation for repairs, new construction investment).

If an enterprise purchases tangible fixed assets as buildings, structures attached to long-term land use rights, the land use rights value must be separately accounted and recorded as intangible fixed assets; Tangible fixed assets as buildings, structures have an original cost being the actual purchase price plus (+) direct costs associated with bringing the tangible fixed assets into use.

The land use rights value is determined according to the contract's agreed price consistent with the market price, but not lower than the land price in the provincial or centrally governed city's price list at the purchase time.

If an enterprise purchases tangible fixed assets as buildings, structures attached to long-term land use rights but the land use rights value cannot be separated, it is determined following the provincial or centrally governed city's price list at the purchase time.

If an enterprise transfers part of its capital or the entire enterprise to another as per law, and there is asset transfer, the acquiring enterprise is only allowed depreciation of fixed assets into deductible expenses for the transferred assets which meet depreciation conditions based on the remaining value in the accounting books at the transferring enterprise.

When determining income subject to CIT in Vietnam, what are the cases in which the depreciation of fixed assets will not be deductible? (Image from the Internet)

What does income subject to CIT in Vietnam include?

Under Article 3 of the Corporate Income Tax Law 2008 amended by paragraph 1 of Article 1 of Law on amending Tax Laws 2014, taxable income includes income from business operations and other income.

Other income includes:

- Income from capital transfer, transfer of capital contribution rights;

- Income from real estate transfer, project transfer, investment project participation transfer, exploration, mining, processing mineral rights transfer;

- Income from asset use rights, asset ownership rights, including income from intellectual property rights as regulated by law;

- Income from transfer, lease, liquidation of assets, including valuable papers;

- Income from deposit interest, loan interest, foreign currency sales; income from previously written-off bad debt recovery;

- Income from unidentified payable debts;

- Income from previous years' business omitted income and other income.

* Vietnamese enterprises investing abroad bringing back income after paying foreign corporate income tax to Vietnam are subject to the Double Taxation Avoidance Agreement if signed between Vietnam and the respective countries, according to the Agreement's provisions.

For countries without a Double Taxation Avoidance Agreement with Vietnam, if the corporate income tax rate in those countries is lower, the differential amount with the tax rate specified in Vietnam's corporate income tax law will be collected.

What is the applicable corporate income tax rate in Vietnam?

Under Article 10 of the Corporate Income Tax Law 2008 amended by paragraph 6 of Article 1 of the Law on Amending Corporate Income Tax Law 2013 (some phrases were replaced by paragraph 1 of Article 67 of the Petroleum Law 2022) which stipulates the corporate income tax rate:

Tax Rate

1. The corporate income tax rate is 22%, except as provided in paragraphs 2, 3 of this Article and subjects eligible for preferential tax rates provided in Article 13 of this Law.

Cases subject to the 22% tax rate under this paragraph are subject to a 20% tax rate from January 1, 2016.

2. Enterprises with total annual revenue not exceeding twenty billion VND apply a 20% tax rate.

The revenue to determine enterprises subject to the 20% tax rate under this paragraph is the previous year's revenue.

3. The corporate income tax rate for petroleum activities ranges from 25% to 50% suitable for each petroleum contract; the corporate income tax rate for exploration, extraction of rare resources in Vietnam ranges from 32% to 50% suitable for each project, each business establishment.

The Government of Vietnam regulates detailed guidance on implementing this Article.

Thus, the current corporate income tax rate is 20%.

The corporate income tax rate for petroleum activities ranges from 25% to 50% suitable for each petroleum contract; the corporate income tax rate for exploration, extraction of rare resources in Vietnam ranges from 32% to 50% suitable for each project, each business establishment.

* For enterprises with total annual revenue not exceeding twenty billion VND, a 20% tax rate applies.