Does a business receiving sponsorship money from a foreign company get exempted from corporate income tax?
Does the enterprise receiving sponsored money from a foreign company need to declare and pay Value-Added Tax (VAT)?
According to Official Dispatch 50626/CTHN-TTHT in 2022 guiding the application of tax policy when receiving sponsored money from a foreign company as follows:
Based on the provisions at Clause 1, Article 5 of Circular 219/2013/TT-BTC guiding cases that are not required to declare and pay tax as follows:
Cases not required to declare and pay VAT
1. Organizations and individuals receiving monetary compensations (including compensation for land and property on land when the land is recovered by decision of a competent State agency), rewards, supports*, transfer of emission rights, and other financial receipts.*
Business establishments receiving compensations, rewards, supports, transfer of emission rights, and other financial receipts must issue receipts according to the regulation. For business establishments disbursing money, based on the purpose of disbursement, they must issue disbursement documents.
In case of compensation in goods and services, the compensating establishment must issue an invoice and declare, calculate, and pay VAT as for selling goods and services; the compensated establishment declares and deducts VAT as per regulations.
In case a business establishment receives money from an organization or individual to perform services for such organization or individual such as repairs, warranties, promotions, advertisements, they must declare and pay tax according to the regulations.
The enterprise receiving sponsored money from a foreign company according to the provisions at Clause 1, Article 5 of Circular 219/2013/TT-BTC is not required to declare and pay Value-Added Tax.
However, in the case where the enterprise receives sponsored money from an organization or individual to perform services for such organization or individual like repairs, warranties, promotions, advertisements, they must declare and pay tax according to the regulations.
Does the enterprise receiving sponsored money from a foreign company exempt from corporate income tax?
Does the enterprise receiving sponsored money from a foreign company exempt from corporate income tax?
According to Clause 15, Article 7 of Circular 78/2014/TT-BTC, it provides for taxable income, in the tax calculation period, which this income does not fall into the industries and business fields recorded in the business registration of the enterprise, among which:
Other income
...
15. Gifts in money or in kind; received income in money or in kind from sponsorships; income received from marketing supports, cost supports, payment discounts, promotional rewards, and other supports. For income received in kind, the value of the kind is determined by the equivalent value of goods or services at the time of receipt.
Additionally, at Clause 7, Article 8 of Circular 78/2014/TT-BTC, it provides for tax-exempt income as follows:
Tax-exempt income
...
7. Sponsored amounts received for use in education, scientific research, culture, arts; charity, humanitarian, and other social activities in Vietnam.
In case the organization receiving the sponsorship uses the sponsored money not for the intended purpose, such organization must calculate and pay corporate income tax on the portion used for the wrong purpose in the taxable period in which the misuse occurred.
The organization receiving the sponsorship stipulated in this Clause must be established and operate under the law, and comply with accounting and statistical regulations.
Thus, the sponsored money received by the company from a foreign partner company, if it does not fall into the tax-exempt income cases provided in Clause 7, Article 8 of Circular 78/2014/TT-BTC, is determined as other income as stipulated in Clause 15, Article 7 of Circular 78/2014/TT-BTC mentioned above. Taxable income in the tax calculation period includes income from the production and business activities of goods and services and other income.
What is the corporate income tax rate?
According to the provisions of Article 10 of the Corporate Income Tax Law 2008 amended and supplemented by the Corporate Income Tax Law Amendment 2013, the corporate income tax rate is as follows:
Tax rate
1. The corporate income tax rate is 22%, except for the cases stipulated in Clause 2, Clause 3 of this Article and in the cases receiving tax incentives under Article 13 of this Law.
The cases subject to the tax rate of 22% stipulated in this Clause switch to the tax rate of 20% from January 1, 2016.
2. Enterprises having a total annual revenue not exceeding twenty billion VND apply the tax rate of 20%.
The revenue used to determine if an enterprise qualifies for the 20% tax rate in this Clause is the revenue of the preceding year.
3. The corporate income tax rate for activities of searching, exploring, and mining oil, gas, and other precious resources in Vietnam ranges from 32% to 50% depending on each project and business establishment.
Thus, the enterprise must declare and pay corporate income tax at the tax rate as prescribed above.
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