Depreciation expense of fixed assets to give, donate, compensate to be deducted when determining corporate income tax (CIT) in Vietnam?
What is fixed asset in Vietnam?
Currently, in the provisions of the current law, there are no specific provisions on the concept of specific fixed assets. However, according to the provisions of Article 2 of Circular 45/2013/TT-BTC, the types of fixed assets are as follows:
- Tangible fixed assets: are means of labor primarily in the physical forms and satisfy the criteria of tangible fixed assets, involved in many business cycle but remain original physical forms as buildings, structures, machinery, equipment, means of transportation ...
- Intangible fixed assets: these assets are not physical forms, represents a value of the investment has to satisfy the criteria of an intangible asset, involved in many business cycles such as some costs directly related to land use; issuance right, patent, copyright ...
- Fixed assets of financial leasing are the assets which enterprises lease from financial leasing companies.
At the end of the lease term, the lessee has the right to purchase the leased property or continues the lease under the terms agreed in the lease contract.
The total rent of an asset type specified in the financial leasing contract must be at least equal to the value of that asset at the time of contract signing.
All leased assets if not meeting the above-mentioned regulations are considered as the operating leased fixed assets
- Similar fixed assets: are the ones with their similar utility in the same business area with equivalent value.
- Primary price of fixed assets:
+ Primary price of tangible fixed assets includes all expenses that enterprises have to spend to have the tangible fixed assets by the time the assets are put into a state of ready for use.
+ Primary price of intangible assets includes all costs that enterprises have to spend to have the intangible assets as of the time the assets are put into use as intended.
What is Corporate Income Tax (CIT) in Vietnam?
Currently, there are no specific regulations on the concept of CIT, but you can understand CIT as follows:
CIT is a type of direct tax, levied directly on the taxable income of enterprises, including income from production and trading activities of goods and services and other incomes as prescribed by law.
Depreciation expense of fixed assets to give, donate, compensate to be deducted when determining CIT in Vietnam? (Image from the internet)
Depreciation expense of fixed assets to give, donate, compensate to be deducted when determining CIT in Vietnam?
Pursuant to the guidance in Official Dispatch 36818/TCHN-TTHT in 2022, guiding the determination of CIT for fixed asset depreciation expenses as follows:
“Hanoi Tax Department received transfer slip No. 696/PC-TCT dated July 1, 2022, transferring official letter No. 1518/NSHN-TCKT dated June 24, 2022 of Hanoi Clean Water One Member Limited Liability Company (hereinafter referred to as Company for short) asked about the cost of depreciation of fixed assets to give, donate, compensate, Hanoi Tax Department has the following comments:
- Pursuant to Article 5 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance guiding cases where VAT declaration and payment is not required:
In case of compensation with goods or services, the compensation establishment must issue an invoice and declare, calculate and pay VAT as for the sale of goods and services; compensation-receiving establishments declare and deduct according to regulations.
- Pursuant to Article 3 of Circular No. 26/2015/TT-BTC dated February 27, 2015 of the Ministry of Finance amending and supplementing a number of articles of Circular No. 39/2014/TT-BTC on sales invoices, Service Provider:
7. Article 16 is amended as follows:
a) Point b Clause 1 of Article 16 (amended in Clause 3 Article 5 of Circular No. 119/2014/TT-BTC) is amended as follows:
b) When selling goods and services, including those used for trade promotion, advertising, samples, goods and services used for donation, exchange, or paid as salaries (except for goods internally circulated or internally used to proceed production), the seller must issue invoices.
9. Point 2.4 of Appendix 4 is amended as follows:
“2.4. Use of invoices, receipts for goods/services on sale, advertising, samples, donation, gifts by VAT payers applying credit-invoice method:
a) Goods/services used on sale must have invoices bearing the names and quantities of goods, specifying that they are on sale, samples in accordance with regulations of law on VAT.
Goods/services used as gifts or paid as salaries must have VAT invoices (or sale invoices) bearing all necessary information and VAT calculation methods as if they are sold to customers.”
- Pursuant to Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance guiding deductible and non-deductible expenses when determining taxable income:
"1. Except for the non-deductible expenses prescribed in Clause 2 of this Article, every expense is deductible if all of these following conditions are satisfied:
a) The actual expense incurred is related to the enterprise’s business operation.
b) There are sufficient and valid invoices and proof for the expense under the regulations of the law.
c) There is proof of cashless payment for each invoice for purchase of goods/ services of VND 20 million or over (including VAT).
The proof of cashless payment must comply with regulations of law on VAT.
2. The expenses below are not deductible when calculating taxable income:
2.2. Depreciation of fixed assets in one of the following cases:
b) Depreciation of fixed assets without proof of ownership of the enterprise (except for fixed assets under a lease purchase contract).
…
Based on the above provisions, the Hanoi Tax Department has the following comments:
Assets received by the Company from donation or compensation are determined as fixed assets if they meet the criteria as guided in Circular No. 45/2013/TT-BTC above. The company is responsible for depreciating fixed assets according to regulations.
In case the above fixed assets do not have sufficient documents proving their ownership of the Company, the depreciation expense for these fixed assets shall not be deducted when determining taxable income according to the guidance at Point 2.2. Clause 2, Article 4 of Circular No. 96/2015/TT-BTC mentioned above.”
Accordingly, assets the company receives from donation, donation or compensation are determined as fixed assets if they meet the criteria as guided in Circular No. 45/2013/TT-BTC above. The company is responsible for depreciating fixed assets according to regulations.
In case the above fixed assets do not have enough papers to prove their ownership, the depreciation expense for these fixed assets shall not be deducted when determining taxable income according to the guidance at Point 2.2. Clause 2, Article 4 of Circular 96/2015/TT-BTC.
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