When determining income subject to CIT in Vietnam, what expenses for salary, remuneration, and bonus paid to employees will not be deductible?

When determining income subject to CIT in Vietnam, what expenses for salary, remuneration, and bonus paid to employees will not be deductible?

According to Point 2.6, Clause 2, Article 6 of Circular 78/2014/TT-BTC, amended and supplemented by Article 4 of Circular 96/2015/TT-BTC and further amended by Clause 2, Article 3 of Circular 25/2018/TT-BTC, expenses for salary, remuneration, and bonus paid to employees in the following cases will not be deductible when calculating taxable corporate income, specifically:

- Expenses for salaries, wages, and other payables to employees that the company has recorded into business production costs during the period but did not actually pay or do not have payment documents as prescribed by law.

- Salary and bonus payments to employees that are not specifically stated in the following documents: Labor contracts; collective labor agreements; financial regulations of the Company, Corporation, or Group; Payment regulations stipulated by the Chairman of the Board of Directors, General Director, or Director following the company’s financial regulations.

+ In the case where the company signs a labor contract with a foreign employee, which includes tuition fees for their children studying in Vietnam from kindergarten to high school paid by the company as part of salary and wage and with complete invoices and documents, these can be included as deductible expenses when determining income subject to CIT.

+ In the case the company signs a labor contract with an employee, which includes housing expenses paid by the company as part of the salary and wage, and with complete invoices and documents, these can be included as deductible expenses when determining income subject to CIT.

+ In the case a Vietnamese company signs a contract with a foreign company stipulating that the Vietnamese company must cover accommodation costs for foreign experts during their work period in Vietnam, the rent paid by the Vietnamese company for the foreign experts can be included as deductible expenses when determining income subject to CIT.

- Expenses for salaries, wages, and allowances payable to employees but not paid by the end of the annual tax return filing deadline unless the company has set up a reserve fund to supplement the payroll fund for the following year. The annual reserve is decided by the company but cannot exceed 17% of the actual payroll fund.

The actual payroll fund is the total amount of salary actually paid up to the last day of the final tax return filing deadline (excluding the payroll reserve from the previous year used in the tax settlement year).

The salary reserve setup must ensure that the company does not incur losses after the reserve; if losses occur, no reserve is allowed up to 17%.

If the company set up a salary reserve in the previous year but within six months from the end of the financial year has not used or only partially used the salary reserve, the company must reduce the next year's expenses.

Example: When filing the 2014 tax return, Company A set up a salary reserve of VND 10 billion. By June 30, 2015 (for calendar year taxpayers), Company A had only paid VND 7 billion from the 2014 salary reserve, then Company A must reduce the 2015 salary expenses by VND 3 billion (10 billion – 7 billion). If Company A needs to set up a reserve in 2015, it will continue to set up the salary reserve according to regulations.

- Salaries and wages of private enterprise owners, single-member limited liability company owners (owned by an individual); remuneration for founders, members of the Members' Council, and Board of Directors who do not directly participate in business operations.

When determining income subject to CIT in Vietnam, what expenses for salary, remuneration, and bonus paid to employees will not be deductible? (Image from the Internet)

Will expenses for the purchase of goods and services without invoices be deductible when determining income subject to CIT in Vietnam?

Under Point 2.4, Clause 2, Article 6 of Circular 78/2014/TT-BTC, for expenses for the purchase of goods and services without invoices, enterprises may make a list of purchased goods and services according to form No. 01/TNDN enclosed with Circular 78/2014/TT-BTC, but they may not make a list attached with payment documents for goods sellers and service providers in the following cases:

- Purchase of agricultural products and aquatic products directly from their producers or catchers;

- Purchase of handicrafts made of jute, rush, bamboo, leaves, rattan, straw, coconut husk, coconut shell or raw materials from agricultural products directly from their manual producers who do not do business;

- Purchase of soil, rock, sand and gravel directly from households and individuals who exploit them;

- Purchase of scraps of people who directly collect them;

- Purchase of articles, assets and services directly from households and individuals that do not do business;

- Purchase of goods and services of business households or individuals (not including the above cases) that have a turnover below the value-added tax-liable turnover level (VND 100 million/year).

Lists of purchased goods and services shall be signed by legal representatives or authorized persons of enterprises, who shall take responsibility before law for the accuracy and truthfulness of these lists.

Enterprises purchasing goods and services allowed for making such lists for inclusion in deductible expenses are not required to have non-cash payment documents.

If the purchase prices of goods and services on a list are higher than the market prices at the time of goods purchase, tax agencies may base themselves on market prices at the time of purchase of goods or services of the same or similar type available on the market to re-determine the prices for re-calculating deductible expenses for determining taxable income.

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.